Buying power

Brokers and investors all over the world had hoped last year that city real estate plays would become more plentiful and affordable. Indeed, investors still maintain they are focused on obtaining core assets with New York, the favored world location.

“The market is active and on a strong and stable upswing,” said Douglas Harmon of Eastdil Secured who shepherded last year’s blockbuster sale of 111 Eighth Ave. to Google. “Today there are ample creative solutions to overleveraged or problem properties, and New York City is the epicenter for the world’s investment dollars seeking a safe, liquid, more stable home. For stabilized and core properties the market is sizzling.”

Among other projects, Harmon is currently working on the sale of 245 Fifth Ave. for Joseph Moinian and Goldman Sachs’ Whitehall Funds. The 310,000-square-foot building in the Flatiron district by Madison Square Park was purchased in 2007 for $190 million. But sales have lagged as area owners moan that if they sell an asset, they have nowhere to put the proceeds.

“You are seeing great pricing and a lot of demand and you would think sellers would be responding to it, but they haven’t,” noted Nat Rockett of Cushman & Wakefield. “They say, ‘So I sell this and then what? Why would I trade out of a New York asset and then do what?’”

Office sales therefore have become as rare as white rhinos and many are simply recapitalizations wherein new or current equity buys a percentage.

For example, TIAA-CREF sold a partial interest in the empty former Pfizer building at 685 Third Ave. to Future Funds of Australia. SL Green Realty Corp. bought out the 49.9 percent stake it didn’t already own at 521 Fifth Ave. for $122,604,300 or $502 per square foot, revaluing the building at $246 million.

Harmon and his colleague Adam Spies of Eastdil Secured are conducting the final marketing stages of two jumbo buildings: the sale or recapitalization of the 2.4 million square-foot Starrett Lehigh Building in Chelsea whose value could reach approximately $1 billion and the sale of a 49 percent stake in Paramount’s 2.3 million square-foot 1633 Broadway. That will soon become the Allianz Building for its new 266,000 foot tenant. Value is being pegged at almost $2 billion.

The CB Richard Ellis team of Darcy Stacom and Bill Shanahan is currently pitching 750 Seventh Ave. for Hines. That 600,000 square foot office building in Times Square is 99 percent leased to tenants including Morgan Stanley and is also expected to garner many bids.

The Elektra residential tower at 290 Third Ave. was sold for $122.5 million to Invesco, a core fund out of Dallas with its former owner, Adellco, staying on as manager. “It was sold at $1,000 a foot and a sub-four cap rate,” said Andrew Scandalios of Holiday Fenoglio Fowler who marketed the building. The project is fully taxed with all market rate apartments and will remain as a rental, he said.

Another residential building at 737 Park Ave. is at the end of its marketing process by Jones Lang LaSalle’s Richard Baxter, Ron Cohen, Scott Latham and Jon Caplan and expected to fetch around $250 million.

Meanwhile, hoteliers, beaten up for several years, are using the recent bumps in tourism, occupancy and room rates to trade out of assets. Stacom said their recent sale of the New York Helmsley Hotel on E. 42nd St. to Host Hotels for $313.5 million went from a break-even price when they started the marketing to “a pretty decent” cash flow. “So that went straight to the bottom line,” she said. The 788-room hotel will also receive a $65 million renovation that will also add rooms.

This month, FelCor Lodging Trust signed a contract to buy the Morgan and the Royalton from Morgans Hotel Group for $140 million with Morgans retaining the management contract.

Jones Lang LaSalle is marketing both the Paramount Hotel and the InterContinental New York Barclay. Additionally, Harmon has been working on the sale of the renowned hispster haunt, the Chelsea Hotel on W. 23rd St., which is now in contract for more than $80 million. “The not yet formally announced winner will provide a lot of new and a lot of old with a dash of mystery,” Harmon shared.

The $300 million note on the Mark Hotel at E. 77th St. is being purchased by Dune Capital for about half its face value from Anglo Irish Bank. The hotel is the subject of a stalled condo conversion plan by Alexico Group. In another broken condo deal, the Anglo Irish-held approximately $94 million face value note on the Setai at 40 Broad St. was sold by Scandalios to Ziel Feldman’s HFZ and the Acro Group from Israel for $80 million.

Recognizing that the pipeline for new projects is drying up, developers are also out seeking development sites.

“The entire landscape has changed from land being out of the conversation to being front and center,” said Woody Heller, head of Capital Markets for Studley who last year handled the sale of the note controlling the Drake site from Deutsche Bank to CIM Group.

Heller says that 50 percent of the situations he looks at now are land sales for development sites. “A lot of these are sites that were assembled and put on the back burner — many are parking lots or vacant land,” Heller explained.

Cushman & Wakefield currently has four development sites on the market right now said Nat Rockett of the Capital Markets Group. “There are a fair amount [of development sites] that are out in the market or in discussions,” ne said.

Christoper Albanese, principal of the Albanese Organization noted that it’s been tough to get sites. “Everyone thought with the financial meltdown you’d be able to steal Manhattan properties,” he laughed.

He recently purchased the Chelsea Art Museum along with Richard Born’s BD Equities through the bankruptcy court in a deal that required the museum to remain in place until the end of 2011.

“It wasn’t an easy process and wasn’t an easy deal,” Albanese said.

The company has now hired Jesse Rubens of Murray Hill Properties to try to lease the building which can even be enlarged. “There are spectacular floating stairwells that penetrate all three floors,” said Rubens. “We’re looking for a company that wants to make this part of their brand.”