THE 4 FOOD GROUPS – November 2006

RESIDENTIAL
Mixed emotions greet landmark property sale
It all depends on your perspective.

Either the acquisition last month of 110 residential buildings in downtown Manhattan represented one of the pinnacles in New York City real estate or yet another blow to the plight of middle-class residents in urban America.

When a joint venture between Tishman Speyer and Blackrock Realty paid $5.4 billion (€4.2 billion) to best dozens of other competitors in the auction for Stuyvesant Town and Peter Cooper Village, they became the proud owners of an unprecedented swath of property—11,200 apartments that cover nine city blocks on the East Side of lower Manhattan.

“It’s a one-of-a-kind purchase,” Richard LeFrak, chairman of the LeFrak Organization, told The New York Times last month.

“These things don’t come up very often,” agreed William Mack, a principal at Apollo Real Estate Advisors.

The mood was decidedly less upbeat among many residents and politicians, who feared that the sale would eventually force out many existing tenants— approximately 75 percent of the apartments reportedly fall under some kind of rent control or rent stabilization rule. An investor consortium aligned with the tenants was among the bidders, but its reported offer of $4.5 billion fell well short of the Tishman-Blackrock bid.

“Stuy Town and Peter Cooper in some ways represent New York’s version of the American dream,” Christine Quinn, the city council speaker, told The New York Times. “People thought if they could make it if they got in. The decline of middle-class housing is a citywide problem.”

In the face of tenants’ concerns about the elimination of rent controls, Tishman Speyer has launched a proactive campaign to calm any fears. “The thousands of tenants in rent-stabilized apartments are completely protected by the existing system,” Jerry Speyer, the president and chief executive officer of Tishman Speyer, said in a statement. “No one should be concerned about a sudden or dramatic shift in the neighborhood’s make-up character or charm.”

RETAIL
World Cup anticipation
Four years before South Africa hosts the 2010 World Cup, it seems real estate investors are already starting to jockey for a piece of the action. In one of the largest deals ever in the country, an investor consortium including Istithimar and London & Regional Properties recently acquired the Victoria and Albert Waterfront in Capetown for $1.3 billion (€1.0 billion). The mixed-use property features offices, hotels and a marina, as well as numerous restaurants and 600,000 square feet of retail space, all of which helps to attract approximately 22 million visitors a year—a number that will certainly spike when millions of soccer fans arrive to the appropriately named Cape of Good Hope.

In a statement, Richard Livingstone, director of London & Regional, said: “[The property] sits in a magnificent location with significant allowable development, giving us the chance to create a truly world-class resort, which can be a focal point for the FIFA World Cup 2010.”

OFFICE
Moscow leads the way
Corruption, rising prices and opaque legislation may be keeping some private equity real estate investors away from Moscow, but it seems office developers are not frightened so easily. According to the latest Global Office Real Estate review by Colliers International, Moscow leads the world in office construction with an estimated 27 million square feet of ongoing development. At least one opportunistic investor contributing to that total is Morgan Stanley, which recently acquired stakes in two developers, including RGI International, a developer of upscale residential property as well as commercial projects in central Moscow. The company’s development pipeline totals 100,000 square meters. Just behind Moscow in the rankings is Dubai, which has 24 million square feet of office properties under development. Rounding out the top five were Beijing (23.6 million square feet), Shanghai (21.6 million square feet) and Johannesburg (17.9 million square feet).

INDUSTRIAL
No vacancies
According to two recent research reports released by Prologis, the shareholders of the industrial giant have reasons to be smiling.

The company’s US Property Market Review showed improving economic conditions were having a positive impact on the American industrial market. In the second quarter of 2006, vacancy rates fell to 8 percent across the country’s top 30 markets—the healthiest market was the Los Angeles basin, which had an overall vacancy rate of 3.5 percent. The company estimates that vacancy rates will fall even further by the end of the year. Another Prologis report, the US Construction Pipeline Report, had equally positive news: given rising construction costs, the number of new properties under development is expected to be limited.

“Leasing market conditions have tightened to the point where property owners are now in the driver’s seat with enough leverage to begin pushing rents higher,” said Leonard Sahling, Prologis first vice president of research, in a statement.