THE 4 FOOD GROUPS – February 2006

RESIDENTIAL
Shelter from the storm
New York City, given its space limitations, has always been home to interesting residential conversions. Over the past few years, everything from Catholic churches to abandoned factories to vintage skyscrapers have been targeted for redevelopment into high-end condominiums. Now, a former shelter for runaway youths could be next.

Located in the city’s fashionable Chelsea neighborhood and steps away from the gritty yet increasingly trendy Meatpacking District, the Covenant House building on West 17th Street is being marketed to private equity real estate funds as a potential residential or condo-hotel opportunity. The 185,000 square foot structure, which consists of an 11-story building and a five-story annex, had been used in the past to house and train at-risk and runaway children. Covenant House, one of the largest non-profit youth agencies in the US, had also used the building as its national headquarters.

The property, known as the Annex, along with an adjacent building, known as the Plaza, was once part of the National Maritime Union—the building’s distinctive architecture features windows that evoke the portholes of a ship. Covenant House originally bought both properties in 1988 for approximately $30 million. The recent gentrification of the neighborhood has certainly helped real estate values: the buildingcould reportedly fetch up to $150 million.

Things were not always so rosy, in the mid 1990s, the non-profit agency was forced to sell the Plaza for the paltry sum of $5 million. After a brief stint as a short-term residence for visiting Chinese scholars, the building was recently converted to a luxury boutique hotel. Called the Maritime, the property features an outdoor bar, a high-end Japanese restaurant and a nightclub.

RETAIL
Deals move down under
With multi-billion transactions such as Toys ‘R’ Us and Neiman Marcus, the US retail sector has been host to some of the highest profile private equity real estate deals of the past twelve months— now, the trend seems to have spread across the Pacific. Late last year, Australian private equity firms Catalyst Investment Managers and Castle Harlan Australian Mezzanine Partners (CHAMP) teamed up to purchase two distressed retail chains: Warehouse Group, a flailing New Zealand-based discount retailer, and Miller’s Retail, a Sydney-based chain of variety stores. The purchase price was A$212 million ($159 million; €131 million). The private equity firms plan to merge the two businesses such that, following the transaction, the new retail group will have approximately 450 retail stores and more than $1 billion in estimated sales.

OFFICE
Goldman going green
A recent report by McGraw-Hill Construction noted that the environmentally responsible “green building” market will reach upwards of $20 billion within the next five years, a significant increase from its current level of approximately $3.3 billion, or two percent of nonresidential construction starts in 2004. Goldman Sachs, for one, is hoping to do its part. The New York-based investment bank recently broke ground on its new headquarters, a 43-story building that may not only help revive the downtown financial neighborhood, still reeling from the aftereffects of September 11 and the migration of firms to Midtown Manhattan and other locales, but also the environment. When the building is completed in 2009, it is expected to be one of the largest office buildings in the US to achieve LEED Gold certification, the highest environmental rating under standards developed by the US Green Building Council.

INDUSTRIAL
Going global
At a recent real estate conference hosted by New York-based investment bank Bear Stearns, two of the leading players in the industrial sector offered their thoughts on investment opportunities abroad. Jeffrey Schwartz, chief executive officer of Denver-based REIT Prologis, and Hamid Moghadam, his counterpart at San Francisco-based AMB Property Corporation, both suggested that the industrial sector, perhaps more so than any other property type, would benefit from globalization. “It’s a very different business than the residential, retail, office et cetera,” said Schwartz.“We have a global relationship with our customers. It really is a very scaleable business…and it becomes exponentially more powerful.” Moghadam expressed the same opinion, albeit a bit more optimistically,“We will not have a panel on global investing at a conference like this in five years,” he said, “because everyone will be investing globally.”