Deal That Was Supposed To Mark Renaissance Of New York Commercial Real Estate Market Collapses

Tyler Durden's picture

Remember the deal which to much fanfare, lots of subsequent Merrill upgrades, and endless boasting by SL Green CEO Marc Holliday was supposed to usher in the second golden age for New York Commercial Real Estate? The deal that was the alleged steal of 485 Lex by a bunch of shady investors which we wrote about first 4 months ago. The deal that SL Green CEO, Marc Holliday said "is a first, but significant step
towards the sale of interests in 485 Lexington Avenue. If ultimately
approved, the transaction would demonstrate that the Midtown Manhattan
office market continues to stand as one of the world's top locations
and that investor interest is once again on the rise.
" Remember now? Ok. That deal just died. And with it died any hope that the "Midtown Manhattan office market continues to stand as one of the world's top locations," that REITs fairly priced, and that Bill Ackman's recent REIT book talking tour is anything but.

Crain's New York reports: "SL Green Realty Corp.'s deal to sell 49.5% of 485
Lexington Ave. has fallen through, the company's chief executive, Marc
Holliday, said at an investment meeting Monday. Mr. Holliday
didn't detail the reasons that led to the transaction, which was
announced over the summer, falling apart. Instead, he noted there could
be litigation involved in the unraveling of the deal,
which valued the
32-story tower at $504 million. Sources said CW Capital, the special
servicer that controlled the building's mortgage, refused to sign off
on the transaction."

On August 10th we said "Zero Hedge is waiting with baited breath for the Holliday mirage to
dissipate, while in the meantime Class A office space in 767 Fifth
Avenue can be sublet for $60/sq foot.
" It just dissipated. We are happy to have been completely correct in our continuing assessment of the amount of Kool Aid consumed by various book talkers.

More from Crains:

Last August, Gilmore USA and Israel-based technology company
Optibase—agreed to pay $20.8 million and assume $450 million of
outstanding debt on the 921,000-square-foot building between East 46th
and East 47th streets. Under the terms of the complex deal, the buyers
were to lend SL Green $20 million on top of the agreed-upon purchase
price. SL Green secured the loan from the buyer by promising it another
49.5% interest in the building.

The sales market for large
Manhattan office buildings has been all but dead for almost two years
as the recession and credit crisis stifled deals. Prices have dropped
anywhere from 50% to 60% since they peaked in early 2007.

deal for 485 Lexington would put a value of $547 per square foot on the
tower. That is well above the $392 a square foot fetched by 1540
Broadway—a far newer building—earlier this year. However, 1540 Broadway
is about 21% vacant, which 485 Lexington is about 3% vacant. SL Green,
Manhattan's largest publicly traded landowner, purchased the building
nearly five years ago from TIAA-CREF.

The CRE collapse is not over. It is just starting. We urge all of you who own IYR to call Mr. Holliday and get his revised thoughts. Then again litigation trumps valuation any day. Especially when you are dealing with a ticking timebomb and you are just looking for the biggest idiot out there with deep pockets to take it off your hands post haste.

Speaking of book talkers, here is Mr. Ackman's Mall REIT presentation. Perhaps he should just Fedex it direct to Optibase - hopefully they can be tempted to buy something from Bill.



And for those just a tad more skeptical, we refer you to Part One of our recent analysis on where the CRE dirty bomb will strike next.

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lizzy36's picture

hmmm, someone disagrees with ZH (although someone is clearly talking their own book).

New York City’s real estate market has “weathered the storm” and residential property sales are picking up, according to Barry Sternlicht, chairman and chief executive officer of Starwood Capital Group LLC.

Condominiumsat Starwood’s Battery Park City residential tower are “selling like hotcakes,” Sternlicht, 49, said today in an interview.

Careless Whisper's picture

Well idk what he means by hotcakes. Their condo called "Visionaire" that he is referring to closed on 6 units in November. The building has a total of 250 units, so at that rate it will take 3 1/2 years to sell all the remaining hotcakes. Perhaps they attribute their success to this prestigious and highly coveted international award that the Visionaire received (you can't make this stuff up).


Hephasteus's picture

I guess we do need badges. Badges of honor.

Screwball's picture

And IYR rockets higher.

Anonymous's picture

"It just dissipated. We are happy to have been completely correct in our continuing assessment of the amount of Kool Aid consumed by various book talkers"

Good eyes for spotting sham deals full of happy talk.

Optibase is full of anti-constitutionalists from Israel who believe spying on US citizens is a great way to make a buck.

Anonymous's picture

This Ackman document is a complete joke. It's put together to fool morons. Who does he think his audience is, Calpers?

Green Sharts's picture

What a pathetic superficial analysis by Ackman or whichever 25 year old MBA employee put it together for him.  His entire investment case rests on the recession being over, and he supports that by pointing to the Q3 GDP figure, quoting Bernanke consumer sentiment numbers and the latest unemployment number being down from 10.2% to 10.0%.

There's no mention of contractions in consumer debt and credit card limits, increased savings rates, declines in net worth, etc. There's also no analysis of the operating leverage in the REITs, i.e. how would their cash flows be impacted by changes in occupancy rates and lease rates, what portion of REIT revenues are tied to retailer revenues.  No analysis of how long existing leases run.

I probably shouldn't expect any better from Ackman after his proposal for "adding value" at Target via financial engineering. That Target only hedge fund loaded up with stock and call options worked out really well for Ackman and his investors; the last I read he'd lost over 80% of the money in that fund.

Here's a 2003 NY Times story on Ackman in the last recession:

But he got MBIA right, have to give him credit for that one.

gatopeich's picture

Very nice pics in this CRE series.

Makes me eager to take my girlfriend to know Manhattan before it's too different from the fine place I remember.

Anonymous's picture

what comes around, goes around. SLG / Gramercy didn't play nice with Sapir (douche) + (pending lawsuit) at 100 Church via lender non-consent of the Claremont tx. The humping has just begun for SLG. They like their mezz positions well DUN.

percolator's picture

Does anyone know what the hell is going on with GGWPQ?

loki's picture


I want to know who the "purchaser" was who got fucked for a loss of their deposit of $27 million dollars.

Why does this deal smell fishy??



Thurgy's picture

There is a little book talking that goes on here as well. :)