In recent times, the real estate market has witnessed few $1 billion-plus deals for individual properties in the US. Then, within the span of just a few days last month, three such transactions were announced in New York.
In the first deal, The Carlyle Group sold 650 Madison Avenue in midtown Manhattan to Crown Acquisitions and Highgate Holdings for $1.3 billion. That marked the largest single-asset sale in the US since a consortium consisting of Jamestown Properties, Taconic Investment Partners and the New York State Common Retirement Fund sold 111 Eighth Avenue to Google for $1.8 billion in 2010 – and that obviously was an owner-occupier deal.
Any coronation of the Washington DC-based private equity firm as king of the billion-dollar deals, however, was short lived. The very next day, it was announced that Goldman Sachs and Dubai-based real estate investment firm Meraas Capital had sold their combined 40 percent stake in the General Motors Building in midtown Manhattan to a joint venture between Zhang Xin, chief executive of developer SOHO China, and the New York-based investment arm of the Safra family for approximately $1.4 billion, valuing that building at roughly $3.4 billion.
Then, six days later, the Wall Street Journal reported a joint venture between Ivanhoe Cambridge and Callahan Capital had agreed to purchase a 49 percent stake in 1211 Sixth Avenue for not far off the $1 billion mark, valuing the Manhattan office tower at $1.75 billion. In addition, a recent report from Reuters revealed that Cammeby’s International Group had offered to buy the Empire State Building for $2 billion.
Compared to previous years, this is glut. Data from Jones Lang LaSalle (JLL) shows that $1 billion-plus single-asset transactions have been scarce since the credit crunch. In 2007, one year before the global financial crisis, there were 11 such deals recorded, all of them in New York. Not surprisingly, only two took place in 2008. Since then, aside from Google’s purchase of 111 Eighth Avenue in 2010 and RXR Realty’s purchase of 601 West 26th Street for $920 million in 2011, there was none of this magnitude from 2009 through 2012.
So, has the billion-dollar deal returned? “I think they have returned, and we’ll be seeing more of them,” said Peter DiCorpo, president of CBRE Global Investors’ managed accounts group.
DiCorpo, whose firm represented Meraas Capital in the GM Building deal, noted that foreign capital was becoming more prevalent in the US market. In addition, investors are more willing to invest up to $200 million or even $300 million in equity to buy a minority stake in a building and use a high amount of leverage.
On seeing more deals in the billion-dollar range, Jonathan Caplan, vice chairman of the New York capital markets group at JLL, said: “It would make sense, given the size of this market, pricing recovery, demand and the number of large buildings in Manhattan.”
An abundance of affordable debt and the recent re-emergence of single-asset securitizations are helping push such giant deals. Indeed, for core deals like these, there are a wide variety of debt options, allowing firms to borrow up to 80 percent on a loan-to-value basis, experts said.
With increased demand, low interest rates and greater availability of debt, transactions like the GM Building or 650 Madison very well could go from being outliers to commonplace in the next couple of years. “This is just the beginning,” predicted DiCorpo.