Who Cares about LA Real Estate?

Apparently I spoke too soon. Another major portfolio is about to trade in Southern California. Should make headlines sometime mid-next week. $1.5 Billion-plus deal.

Update: Well, I should check GlobeSt before I post from now on. They've picked up the story already (apparently just posted, because it wasn't even in the PM Alert sent at 4:40 PM ET) that a GICSA affiliate is purchasing the old Arden SoCal Portfolio for about $1.5 billion.

Wachovia, Deutsche Bank Producers Grumbling?

There's a rumor making the rounds that Wachovia's originators are complaining their latest pricing sheet is up to 30 bps wide of the competition, essentially putting them on the beach and out of the game.

Deutsche Bank is rumored to be sitting on the sidelines as well. Word is that the guys at both banks aren't too happy, and aren't sure if this is temporary or the proverbial "writing on the wall".

If you are job hunting, lock up a place ASAP, because I have a sneaking suspicion that the pool of candidates in the market right now (already wider than usual) could get even wider in June.

It's a New Dawn, It's a New Day

After the busiest three weeks of my life, I'm trying to get back into the routine of posting here. Oh, how much has changed in the past 17 days...

Forget what you thought you learned about today's CMBS world during the last 18 to 24 months - it's been flipped faster than the EOP portfolio. With the subprime meltdown, ratings agency warnings, and activist CMBS buyers at all levels serving as catalysts, the CMBS market underwent an enormous adjustment seemingly overnight. Banks re-traded loan apps on their some of their most successful and profitable clients, several banks made it be known that they are out of the 10-year interest-only lending business for good, some borrowers unable to obtain financing walked away from hard deposits, and one of the go-to funding sources for large deal financings went POOF -- literally -- overnight.

Some of the biggest news items since the hiatus:

CMBS Spreads Widen from Top to Bottom (IPG/CRE News [$])
From the top classes to the B-Pieces, CMBS spreads widened. Most see it as a result of S&P and Fitch warnings about law underwriting and new ratings standards. Some point to the subprime mortgage fallout for why CMBS buyers are feeling a little jittery. Either way, it's affecting everyone from the borrowers to banks with un-securitized loans still on their books.

Institutional Real Estate Cap Rates Hit Record Lows (IPG/CRE News [$])
Something has to give, but it didn't happen in the first quarter, as cap rates dropped even further across all property types, according to Bank of America. Marketwide, the average cap rate hit 5.61%, which continued a now 9-quarter decline. For those scoring at home, that's a less than a 100-bp spread on today's Ten-Year at 4.652%. Fantastic.

60 Wall Trades for $1.18 Billion (Reuters - FREE!)
Paramount takes the downtown asset that's been on the market since November 2006. Something may have changed since I last looked at the deal, but the net rentable are should still be 1,625,483 sf, meaning the price was $738 psf, considered a bargain in New York these days. My last underwriting pegged the initial year's NOI at about $64.5 million, which hints at a 5.47% cap rate. That could be off though, since I haven't seen the deal in about 6 months. Looks as though DB got their target price... less about $20 million (only a 1.7% haircut).

There's no real articles on the on-going CMBS adjustments and how it's affecting the market (that I've seen), except for the pay publications like Commercial Mortgage Alert, which is proving to be a priceless resource right now.

Hoping to find time to post more regularly....

3.0%

Dillon Read - DONE!?!

Can't post much now, but the word is that Dillon Read Capital, a subsidiary of UBS, apparently gathered their employees in the ballroom this afternoon and shut everything down at 5:00 pm... Told everyone not to come to work in the morning. Would be HUGE news in the morning.

Rumor goes that they lost a billion dollars plus in the last couple of weeks. I'm sure more info will slowly leak out if proven out, but this is definitely the biggest news in a week that's been full of news (that I haven't had time to post about).

Update Thursday, 9:35 AM: It sounds like the amount lost noted above was overblown by *just a bit* but the media caught wind of this around 4:30 AM this morning. Click for stories from Forbes and Bloomberg.

Update Thursday, 5:10 PM: Although not reported anywhere (that I have been able to find), today's rumor is that Dillon Read was a significant financial backer of New Century, the now-defunct subprime group. This was supposedly responsible for a large chunk of DR's losses.

According to CRE/IPG, Brian Harris, the BSD of the commercial real estate group will take a similar position with UBS.

** ThreeCap's site traffic/visitor count has exploded today due to the news and this post being the first to post anything about it on the web yesterday evening (even though no one wants to leave comments). Welcome to all the new readers - now, don't you all have work you should be doing??

Could a Downtown Migration Signal the End of the Midtown Office Craze?

An article in CPN this morning on JP Morgan Chase negotiating with the Port Authority to building a 50-story office adjacent to the World Trade Center site implies that a number of blue chip Midtown tenants are exploring possibles moves to downtown.

"Overall there is significant sticker shock from some big midtown tenants that are looking downtown. Even the best inventory downtown is trading at approximately half of that ($100 per square foot) at $60 plus or minus a square foot." [So says Brian Given, vice chairman at GVA Williams in Manhattan.]

Following up on this story a few days ago, could we be staring at the beginning of the end of the Midtown office craze?

It is well known that very little available office space exists city-wide, let alone in the core Midtown office market from 6th Avenue to Lexington, 42nd Street to Central Park. If the big banks are going to aggressively pursue the types of spaces the recent rumors suggest, one has to believe that new downtown developments will be their only possible solution.

Let's not kid ourselves - when comparing a new Class A+ office at $60 per square foot versus a 30-year old Class A office at $100 per square foot, ahead of what many believe to be a rebirth of Lower Manhattan, the cheaper, value-added play will win out every time.

The flip side of the coin is that Midtown landlords are forced to drop their rents significantly - perhaps by as much as 25% - to keep these core tenants.

In either case, its hard to see the Midtown valuation trend continuing very much longer; it's certainly much easier to see the nearing peak of the price curve.

Trading Floor Envy at NY I-Banks

A version of this story, which was featured prominently in this morning's WSJ, gave way to emails upon emails from colleagues here and friends at other firms -- even those not mentioned in the article -- reminding me and everyone else it was sent to that the sender still works at a prominent i-bank.

Forget trading floor envy, as the Journal put it; this was best characterized as logo-on-the-polo-shirt envy, or at best, trading floor speculation envy.

These plans fall apart faster than they materialize. Remember in 2003, when Goldman was building a magnificent high rise for their new corporate HQ, the tallest building in the state, with all the bells and whistles you would expect from such a modern architectural and business services marvel -- in New Jersey.

Four years later and they are still leasing that tower up. Meanwhile Goldman is building their new digs in Battery Park City.

From a real estate perpective, if the hype surrounding all of these banks looking for huge amounts of contiguous space is true, it confirms the assumption that Manhattan occupancy rates and rental rates aren't coming down anytime soon, as these hungry banks search for high-profile space, aren't shy about shelling out the money for it, and continue to expand organically and via mergers and acquisitions. As cap rates continue to drop (somehow) to nearly half of the current 10-Year US Treasury yield, significant upside is still the horse that's drawing the carriage.

230 Park Avenue to Trade - Again!!

There's word on the street that The Helmsley Building at 230 Park Avenue will trade for at least $1.1 billion in April. A deal is rumored to have been struck with two buyers, a major I-Bank and the property's current manager, Monday Properties.

This marks the second time the "Crown Jewel of Park Avenue" has traded in the last 18 months, after this year's seller Isthimar bought it in Q3 2005 for $705 million. Word is that Monday wanted to buy it then (along with a host of other bidders), but the guys from the Middle East came in with their over-the-top price on the last bidding day. A year and $400 million more later, it looks like they finally have their building.

The current NOI is rumored to be somewhere around $35 million, resulting in a cap rate in the neighborhood of 3.2% (before closing costs and reserves).