http://crainsnewyork.com/ Commercial Real Estate News - Business in New York is constantly changing and Crain's New York.com brings you the continuous coverage of local business news you need to stay informed and ahead of the competition. en-us Fri, 10 Feb 2012 06:00:00 EST 10 73 73 http://crainsnewyork.com/ http://www.crainsnewyork.com/images/logos/crains-logo.png Wed, 8 Feb 2012 10:36:20 EST
The noteholder had a winning bid of $235 million, according to attorney Howard Walker of McGuire Woods, who ran the auction. Holders of commercial mortgage bonds took ownership through a “credit bid” placed by LNR Partners, David Levin said in a statement. Mr. Levin is vice chairman of Miami Beach, Fla.-based LNR Property, the parent company of LNR Partners, the tower's special servicer.

BentleyForbes, based in Los Angeles, paid $436 million to acquire the 55-story Atlanta skyscraper in 2006 from Bank of America Corp. and Cousins Properties Inc. in the city's biggest property deal. Since the property market peaked a year after the purchase, the 1.25 million-square-foot building's value has tumbled with tenants, including namesake Bank of America, reducing space.

Atlanta has the highest rate of late payments for loans on offices bundled into bonds among the largest U.S. metropolitan areas, at 25.3%, according to data compiled by Bloomberg. That's an increase from 10.4% a year ago and is more than triple the 7% national rate.

The $363 million Bank of America Plaza loan became delinquent in December after BentleyForbes stopped making payments. The loan was partly packaged inside JPMCC 2006-LDP9, which was downgraded by Fitch Ratings in December because of expected losses. ]]> Tue, 7 Feb 2012 18:48:27 EST A scathing audit of the Port Authority of New York & New Jersey describes a dysfunctional, rudderless agency that spent wantonly to rebuild key parts of the World Trade Center complex in time for the 10th anniversary of 9/11 and is now at risk for billions of dollars in extra costs.

The report, commissioned last fall by Govs. Andrew Cuomo and Chris Christie after they approved an unpopular toll and fare hike, forced the board members who oversaw the review to condemn the cost overruns while also defending the agency's decision to finish the World Trade Center memorial in time for last September's ceremonies commemorating the 2001 terror attacks.

“Opening the memorial on the 10th anniversary was an important national objective,” said Executive Director Patrick Foye, who added that the site will one day be among the most valuable pieces of real estate in the world.

“These costs were inevitable once the decision was made in 2008 that we were going to be open for the 10th anniversary,” said Board of Commissioners Vice Chairman Scott Rechler, appointed by Mr. Cuomo in June 2011. “A lot of those costs were recognized in 2008; some of those costs were not recognized until later. Some incurred for work to third parties.”

Chairman David Samson, an appointee of Mr. Christie, said at the outset of a conference call with reporters that the audit's findings were “nonpartisan” and “non-personal.” But the report didn't have to name names: The rebuilding of the site commenced in earnest in 2008 with the arrival of Christopher Ward, the executive director who left at the end of last year. His tenure coincided with total construction costs at the World Trade Center growing to $14.8 billion from $11 billion in 2008. The amount that the Port Authority may ultimately be on the hook for has also grown, the report said, to $7.7 billion from $6 billion.

Mr. Ward did not respond to a request for comment.

Noting that the Port chewed through seven executive directors in 10 years, the audit described a “challenged and dysfunctional organization suffering from a lack of consistent leadership, a siloed underlying bureaucracy, poorly coordinated capital planning processes, insufficient cost controls and a lack of transparent and effective oversight of the World Trade Center program that has obscured full awareness of billions of dollars in exposure to the Port Authority.”

The report traced much of the cost explosion since 2008 to “exposure to third parties”—private and public institutions that in the end may never repay money for construction work performed by the port. The groups identified in the report include the National September 11th Memorial & Museum for an unspecified amount; the City of New York for a $300 million security plan; and $200 million for work to physically support a new Performing Arts Center. Mr. Rechler said the cost owed included work done at the World Trade Center Transportation Hub on behalf of the Metropolitan Transportation Authority.

The audit, overseen by a four-person committee comprising board members and conducted by a consultant, Navigant, noted that “the Port Authority was unable to produce supporting details and source documents for the growth in cost estimates previously reported by prior executive directors to the Board of Commissioners and the governors.” Prior budgets underestimated the cost of completing the commercial and retail space at 1 World Trade Center.

Mr. Foye said new controls were being put in place and employee compensation and benefits were being reviewed. An audit due in June will examine capital costs.]]> Tue, 7 Feb 2012 13:10:35 EST As New York gears up for Fashion Week, which begins Thursday, a new initiative is taking shape in the garment center. In a last-ditch effort to salvage the struggling district while spurring development there, the Bloomberg administration has advanced a new proposal it hopes can finally satisfy both landlords, many of whom despise current zoning restrictions, and industry leaders fearful that changes would only do further harm to their shrinking sector.

But the clock is ticking. City officials must reach a deal with both sides by the end of the month to ensure the plan succeeds before Mayor Michael Bloomberg leaves office , people familiar with the negotiations told Crain's Insider.

Under the proposal, the Fashion Center Business Improvement District would add an assessment on its members designed to raise as much as $3 million a year in new revenue. That money would go to aid property owners within a newly designated area—roughly 100 buildings between Broadway and Ninth Avenue and West 35th and West 39th streets—who are willing to preserve their space for manufacturing. The city plans to release a request for proposals within the area to test the market for the idea.

By providing a dedicated funding source and giving building owners a chance to bite, the proposal could solve a problem that has frustrated city officials for years, supporters believe. Others, however, aren't so sure.

“Some of the ideas floated by the city make some sense, but there's still a lot of work to be done,” said Barbara Randall, the business improvement district's president.

Observers say there are several sticking points. The first deals with how long property owners would be required to preserve their space for fashion firms. The city has indicated it wants landlords to do so indefinitely, which has not gone over well with some business improvement district members.

“The real stumbling block, in my opinion, is that the city is looking to place the burden on the owners, not the tenants,” said Ira Fishman, head of ID Real Estate Partners. Right now, the neighborhood is home to 7,000 garment manufacturing and 13,000 fashion wholesale jobs.

But that number is falling. Last week, no less than the Council of Fashion Designers of America announced it will decamp, shifting from its 1412 Broadway headquarters in the heart of the fashion district to a new, larger space in the West Village. They follow in the footsteps of designers such as Stacey Bendet of Alice + Olivia, Oscar de la Renta and Erin Fetherston, who have all recently moved to other parts of the city such as the meatpacking district or TriBeCa. In total, 75% of the Council of Fashion Designers of America's 300 members are not based in the garment center, according to the business improvement district.

To ensure that enough space for the garment industry remains, the city's new proposal envisions a minimum of 500,000 square feet being set aside for fashion firms by property owners. While that's far more space than the administration's previous proposal to house manufacturers in a single 300,000-square-foot building, it might not be enough to please industry stakeholders.

“It's one of several proposals that are out there,” said Yeohlee Teng, a fashion designer headquartered on West 38th Street and a strong supporter of maintaining the neighborhood for fashion production. Ms. Teng is working with the Design Trust for Public Space, in partnership with the CFDA, on a study called Making Midtown due out in April. It will contain policy recommendations that she says may be folded into what the Economic Development Corp. is proposing. “Everyone agrees that the garment industry is vital,” she said. “I'm happy that they're willing to sit down with us and we look forward to coming up with something that is mutually agreeable that works well for all the stakeholders.”

Nanette Lepore, another designer in the district, agreed. “All stakeholders are still in negotiations, and things are looking positive," she said, noting that this is not a "last ditch effort."

She and colleague Erica Wolf, executive director of the Save the Garment Center coalition, added that the Made in the USA label on apparel is popular again, as politicians focus on returning production to its local roots. "We are optimistic that in New York City a solution will be found," Ms. Wolf said.

The current 13-block district occupies more than a million square feet of space zoned for manufacturing. “The fundamental issue here is whether or not [garment center advocates] can agree to anything less than what comprises the garment center today,” a person with knowledge of the ongoing negotiations said.

The proposed redesign of the district comes just in time for Fashion Week, the eight-day series of runway shows, presentations and parties that happens twice a year. This month, more than 200 design houses will showcase their fall 2012 wares across the city at such popular venues as the tents at Lincoln Center and the meatpacking district's Milk Studios. A few designers, such as Steven Alan and Lauren Moffat, will even host shows on Wednesday, a day before the week's official beginning, while design house Obakki is planning a show Tuesday evening.]]> Tue, 7 Feb 2012 11:51:29 EST Later, New Jersey. FreshDirect is sticking with New York.

Mayor Michael Bloomberg and Gov. Andrew Cuomo announced Tuesday morning that they reached a deal with the online grocer, which will build its new headquarters in the Bronx. The company plans to move into the new space in 2015.

The deal ends an effort by New Jersey officials, who had hoped to lure the Long Island City, Queens-based company to a location in Jersey City by offering about $100 million worth of incentives.

New York's package of incentives totals $127.8 million, including $89.4 million from the city. The state is kicking in $33.9 million in tax credits, grants and loans. FreshDirect will invest $112.6 million to build its headquarters at the Harlem River Yards. At 500,000-square-feet, the new facility on a 16-acre parcel, will be more than twice the size of FreshDirect's current operation and allow the company to further expand into new territories, including deeper penetration into New Jersey and Connecticut and into Philadelphia.

Over the next five years FreshDirect expects to add another 1,000 jobs to its current 1,963 workforce.

“Making sure that companies like FreshDirect can grow and invest in the New York City is a key part of our strategy to rebuild and diversify our economy,” Mr. Bloomberg said in a statement.

Gov. Cuomo said in a statement, “Creating almost a thousand new jobs is a real victory for the Bronx and a clear sign that leading New York companies see this state as the place to start, stay and strengthen their businesses.”

Part of the financial package FreshDirect secured includes credits for building an environmentally friendly facility. In addition, the company is purchasing electric refrigerated trucks.

According to the city, the construction of the new facility will result in the creation of 684 construction jobs here and an overall economic impact to the city of nearly $255 million.

Not everyone is applauding the move, however. At least one community group, Friends of Brook Park, is opposing FreshDirect's relocation. In an e-mail blast it is asking the public to attend a meeting on Thursday in lower Manhattan to discuss how FreshDirect's trucks will compound an already bad pollution problem in the area known for its high rates of asthma. The group, which advocates for waterfront access and green space development, is also concerned that FreshDirect's move will derail the Randall's Island Connector, a pedestrian and bicycle bridge that is supposed to connect the South Bronx to Randall's Island using land at the Harlem River Yards.]]> Tue, 7 Feb 2012 09:00:00 EST This year's tax season may be just around the corner, but Smart Tax, a Manhattan-based independent tax service company, is already gearing up for tax time 2013. The company, which already operates 15 franchises in New York City, is beginning to scout additional locations. By January of next year, owner Nick Rizzi expects to open between 12 and 15 sites.

“We have them in all five boroughs now, but we want to expand on that,” said Mr. Rizzi, noting that the ideal location ranges in size from 800 square feet to 1,000 square feet. “We have franchisees who are in the process of looking.”

Mr. Rizzi, a former financial planner, founded Smart Tax four years ago in an effort to compete with bigger players such as H&R Block. He said that buildouts for a franchisee typically cost less than $25,000 since the office is so basic, typically consisting of little more than a space liberally sprinkled with desks and computers.

Mr. Rizzi said key new neighborhoods for his Smart Tax sites include Manhattan north of 110th Street, Alphabet City on the Lower East Side, the south shore of Staten Island, and Brooklyn. By 2018, he expects to have a total of 100 total Big Apple locations. The company also currently operates 12 sites outside of New York City.

“There's always room in neighborhoods and communities for these types of tenants,” said William Abramson, director of sales and leasing at Buchbinder & Warren Realty Group. He noted that landlords would welcome such a stable tenant. “Taxes and death are the only two things guaranteed in life so at the end of the day, everyone needs to get their taxes done.”

Indeed, Mr. Rizzi said that already plenty of spaces are available.

“This business doesn't really require that A++ location,” he said.]]> Mon, 6 Feb 2012 11:32:50 EST OTO Development is planning to build its second hotel in Manhattan, just 18 months after buying a site for its first.

The South Carolina-based hotel company has reached a deal to buy 220-246 W. 41st St. for $36 million from the Brach family, sources familiar with the deal said. The buyer plans to build a limited-service hotel on the site next to the Nederlander Theatre that is currently home to a parking garage, these sources said. The transaction is expected to close in May or June.

In August of 2010, the company purchased a parcel on West 33rd Street for $21.9 million. According to its web site, OTO started building a Fairfield Inn & Suites on the site in the third quarter of 2011 and hopes to open it in the first quarter of next year. Touting the hotel's central location near Madison Square Garden, the web site says the hotel, which will have a roof top bar, will cater to tourists as well as business travelers.

In the greater New York area OTO owns hotels in Garden City, Long Island and Mahwah, N.J. Over the last six years, it has opened 45 hotels in 11 states, primarily on the East and West coasts, at a cost of nearly $1 billion, the web site said. The hotelier was established in 2004. One of its first investors was billionaire Wayne Huizenga, who started three Fortune 500 companies, and owned the Florida Marlins baseball team, football's Miami Dolphins, and others.

OTO executives didn't have an immediate comment. Samuel Brach, the patriarch of the family, didn't return calls for comment. Eastern Consolidated principal David Schechtman, who had been hired in connection with the deal at one point, declined to comment.]]> Mon, 6 Feb 2012 10:34:05 EST
Atlanta's 55-story Bank of America Plaza, the tallest tower in the Southeast, is set to be sold at an open outcry auction on the steps of the Fulton County Courthouse Tuesday after landlord BentleyForbes missed mortgage payments. It bought the skyscraper in 2006 for $436 million from Bank of America Corp. and Cousins Properties Inc. in the city's biggest property deal.

Since the property market peaked a year later, the 1.25 million-square-foot building has lost 54% of its value, Bank of America, its largest tenant, has reduced space and bond investors who helped finance the purchase are on the hook for losses, according to data compiled by Bloomberg.

“It's a fine building, a beautiful building, and still very much a landmark,” said Kirk Diamond, senior managing director at broker Cassidy Turley, in Atlanta. “It just needs to be recapitalized and written down to a market level to be able to compete effectively.”

Atlanta's office market is a victim of overbuilding and inflated real-estate prices fueled by issuance of commercial mortgage backed securities that peaked in the U.S. at $232 billion in 2007. While investor demand for property debt surged last month by the most since March 2010 as the economy strengthened, borrowers in cities such as Atlanta outside the prime U.S. office markets of New York, Los Angeles, Washington and Boston are struggling to refinance as about $5.8 billion of five-year office loans bundled inside commercial mortgage backed securities matures.

“We're hitting a tremendous amount of that debt coming due,” William Yowell, a vice chairman with CBRE Group Inc. in Atlanta, said in a telephone interview. That will cause “more distressed assets that come to market this year” and may lower the price per square foot on buildings, he said.

While lenders may face more losses, real estate investment trusts are seeking to take advantage by purchasing buildings, said Jim Sullivan, managing director of REIT research at Newport Beach, Calif.-based Green Street Advisors.

The Bloomberg Office REIT Index gained 10.9% this year compared with a 8.5% gain in the Bloomberg REIT Index. (BBREOFPY) That followed a decline of 3.9% last year.

Atlanta's boom and bust property market set the stage for Tom Wolfe's 1998 novel A Man in Full that portrayed an ego-driven Southerner who builds an empire of office complexes.

It's now squarely in the bust category with the highest rate of late payments for loans on offices bundled into bonds among the largest U.S. metropolitan areas, at 25.3%, according to data compiled by Bloomberg. That's increased from 10.4% a year ago and is more than triple the 7% national rate. The rate for payments 60 days late or more was higher than Cleveland at 23.4% and Phoenix at 23.3%, the data show.

The $363 million Bank of America Plaza loan became delinquent in December after BentleyForbes stopped making payments, pushing the overall delinquency rate on commercial mortgage backed securities debt to 9.32%, according to Moody's Investors Service. The loan was partly packaged inside JPMCC 2006-LDP9, which was downgraded by Fitch Ratings in December because of expected losses.

C. Frederick Wehba II, president of Los Angeles-based real estate investor BentleyForbes, didn't return calls. A spokesman for LNR Partners, the special servicer tasked with handling the loan, declined to comment.

The 1,023-foot building would be the tallest in the U.S. to be foreclosed on since the financial markets froze in 2007, according to Real Capital Analytics Inc., a New York-based property research company. Boston's John Hancock Tower, New England's tallest skyscraper at 790 feet, was sold at auction in 2009 after its owner defaulted on debt they used to buy it three years earlier.

The Bank of America tower is a block down Peachtree Street from Atlanta's historic Fox Theatre, where Gone with the Wind began showing after it premiered in 1939. Its façade is covered in granite reminiscent of red Georgia clay, topped by a lighted steel frame pyramid and a 90-foot spire that's visible from miles away. Purple, orange and white pansies line the brick walkways leading to the entrances.

The building is situated between Atlanta's downtown and Midtown areas. A block down Peachtree Street is Gladys Knight's Chicken and Waffles restaurant, where the “midnight train” plate of fried chicken wings and a malted waffle costs $10.50, and there's a pita restaurant and diner on the next block.

BentleyForbes bought the tower from a joint venture of Charlotte, N.C.-based Bank of America and Cousins Properties, an Atlanta-based real estate investment trust. In 2007, a year after the sale U.S. office property transactions peaked at more than $200 billion, Real Capital data show.

The market tumbled the following year as lenders restricted borrowing and the economy fell further into recession. Wall Street banks arranged about $28 billion of commercial mortgage debt securities last year, compared with $11.5 billion in 2010, Bloomberg data show.

Investor demand for the securities has climbed this year as the U.S. jobless rate fell in January to 8.3%, the lowest level in three years, and Europe's sovereign debt crisis abated.

The extra yield investors demand to hold top-ranked commercial-mortgage bonds rather than Treasuries declined 45 basis points since December to 216 basis points, or 2.16 percentage points, according to the Barclays Capital CMBS AAA Super Duper Index. That's the narrowest spread since July after the fastest contraction last month in almost two years.

Lenders have also stepped up competition to lend to New York trophy towers with $930 million refinanced on two skyscrapers since the middle of December; Vornado Realty Trust's Park Avenue tower and Sheldon Solow's 9 W. 57th St., home to Chanel SA and KKR & Co.

Even with improvements, only 27% of loans originated in 2007 at the peak of the market that had so-called balloon maturities in January “managed to pay off,” according to Trepp, a mortgage-data provider. Five-year office loans are $5.8 billion of the overall $55 billion of CMBS loans maturing in 2012, Standard & Poor's said in a December report,

Prices in cities such as Atlanta and Phoenix are well below their highs, said Peter DiCorpo, president of CBRE Global Investors U.S. managed accounts group.

Atlanta office rents are down about 10% to $18.27 a square foot since the first quarter of 2008 and the market has a 16.7% vacancy rate, according to CoStar Group Inc.'s Property and Portfolio Research. The New York area's vacancy rate was 8.4% in the fourth quarter with an average rent of $36.46 a square foot. ]]> Sun, 5 Feb 2012 05:59:00 EST Michael Shah smiles as he sits in one of the mismatched wooden chairs that contribute to the decor of his Lower East Side restaurant Sons of Essex, a local hot spot that regularly pops up in the gossip pages as the backdrop in photos of partying glitterati. It's one of at least seven upmarket properties Mr. Shah has acquired in the past four years as he has moved beyond his original focus on affordable housing in the outer boroughs. Mr. Shah's new growth spurt has been fueled by snapping up properties with problems such as loan defaults and then working them out.

“I find it really exciting,” said Mr. Shah, owner of DelShah Capital, a real estate investment firm.

His latest clash, though, may be a bit too exciting. He is battling the city over fraud penalties, back taxes and interest, charges that officials leveled last month stemming from four of his early purchases. A nonprofit called the African-American Parent Council bought the buildings between 2006 and 2008 and transferred the deeds to companies controlled by Mr. Shah within six months, according to city records. Nonprofits are exempt from paying transfer taxes. Mr. Shah is not. The city says he should have paid the taxes when he took possession, and that it noted a pattern of transactions designed to avoid his tax obligation, according to a spokesman for the city's finance department. With interest and penalties, the city says companies controlled by Mr. Shah now owe $3.1 million.

The council, which was based in an apartment building Mr. Shah owns on Staten Island, hasn't filed income-tax returns or registered with New York state since 2000, according to government and charity-tracking websites. Attempts by Crain's to locate it were unsuccessful.

Mr. Shah's lawyer insists that the transactions were reviewed by the involved parties' lawyers and by all necessary government agencies. “Any allegations that these transactions were somehow improper or fraudulent are baseless, and will fall under their own weight,” said attorney John W. Mitchell.]]> Sun, 5 Feb 2012 05:59:00 EST Lisa Fickenscher - The Grand Central Terminal Apple store may be paying less rent than other tenants, but its neighbors aren't complaining.

Sales at Michael Jordan's The Steakhouse N.Y.C. have increased 7% over the past seven weeks, said co-owner Peter Glazier. And the bump is not because Apple displaced another high-end eatery, Metrazur, which moved out last July and was a formidable Grand Central competitor to the chophouse.

“The jump only happened after Apple opened,” Mr. Glazier said.

Grand Central's landlord, the Metropolitan Transportation Authority, said when it picked Apple as a tenant that it was counting on the store attracting more visitors to the station. As a result, Apple may have gotten a better deal, sparking an investigation of the MTA's lease terms.

“We know their customers are coming here,” added Mr. Glazier's son, Matthew Glazier. “I'm always looking for the little white bags.” ]]> Fri, 3 Feb 2012 17:28:02 EST
“We are currently reviewing all of our properties across our portfolio, with the exception of Bank of America Corporate Center in Charlotte and Bank of America Tower at One Bryant Park” in Manhattan, said a spokeswoman for the bank. The lender owned or leased about 120 million square feet in 26,910 locations at the end of 2010, mostly in the U.S., according to its last annual report.

CEO Brian Moynihan is reevaluating the bank's real estate needs as he eliminates at least 30,000 positions and seeks to trim as much as $8 billion in annual expenses. If Bank of America sells buildings, it will lease back space for operations, avoiding impact on employees, the company said in a statement provided by the company spokeswoman.

The bank already plans leasebacks at three sites: the Fifth Third Center and the Hearst Tower in Charlotte and at 222 Broadway in Manhattan, Reuters reported. It's also reviewing whether to sell its building at 100 Federal St. in Boston, the Boston Globe reported Friday.

Other “materially important properties” owned by the bank and listed in the annual report included campuses with multiple buildings in Hopewell, N.J., and Concord, Calif.

Mr. Moynihan unveiled initial details in September for his cost-cutting plan, dubbed Project New BAC, which divides the company into two parts, each with about $27 billion in annual expenses. He targeted $5 billion in annual reductions from retail and back-office operations, mostly accomplished through eliminating jobs, and he may trim as much as $3 billion from investment and commercial banking, trading, and wealth- management units in the latest phase.

The property divestitures are unrelated to efforts to boost the firm's capital levels to comply with new international rules, said a person with knowledge of the plans. The bank sold $33 billion in assets last year, helping boost Tier 1 common equity, a measure of its ability to absorb unexpected losses, to 9.86% in the fourth quarter from 8.65% in the previous three-month period.

Bank of America rose 5.2% to $7.84 in New York as the broader Standard & Poor's 500 Index climbed 1.5% after better-than-forecast growth in U.S. jobs. The stock is up 41 percent this year after falling 58 percent in 2011.

Bank of Nova Scotia had its biggest gain in about six weeks on Jan. 19 after the Toronto-based lender said it may sell its Scotia Plaza office tower, which would allow it to raise capital without selling shares. ]]>