New Jersey Real Estate Lawyer Blog

The lagging real estate market in NYC has not affected all investors equally. In late July, Mexican billionaire Carlos Slim paid $44 million for a townhouse in Manhattan. The price is the forth highest ever paid for a townhouse in New York. The property was purchased through Slim's real estate investment firm, Inmobiliaria Carso SA. This property rounds out Slim's holdings of other prime NYC real estate, including a Fifth Avenue office building, purchased for $140 million in June and majority ownership in Saks Inc. Saks Inc.'s valuable real estate holdings drove Slim to invest as majority shareholder in the company.

Carlos Slim's purchase of the townhouse is also notable because it is registered as a historical city landmark. Known as the Duke Semans Mansion, the eight-story home is located on the corner of Fifth Avenue and 82nd Street. Built in 1901 for Benjamin Duke, a tobacco baron, the 19,500 square foot home contains 12 bedrooms and 14 bathrooms. Slim reportedly will hold the property as a real estate investment and not as a residence.

Slim may have learned to be a savvy investor from his father, who also had a passion for real estate. An immigrant to Mexico from Lebanon, Slim's father accumulated properties in downtown Mexico City in the years following the Mexican Revolution. Slim very recently began to buy New York real estate as prices in the market started to increase. During the second quarter this year, luxury apartments in New York increased in price by 12% over the same period last year.

Continue reading "Historic Fifth Avenue Townhouse Sold to the World's Richest Man, Carlos Slim " »

In our post "Simon Ups the Ante for General Growth Properties" we wrote about Simon Properties ("Simon") modifying its initial takeover bid for General Growth Properties ("GGP") by using a similar model to Brookfield Asset Management ("Brookfield"). Instead of attempting to merge two of the country's largest mall owners, Simon offered $6.5 billion, which included a $1 billion commitment from hedge fund Paulson & Co., to finance GGP's exit from bankruptcy as a standalone entity. In the Wall Street Journal's article "General Growth to Consider Buyout Bid From Mall Rival," Simon has once again restructured its bid to make it a more attractive option for GGP and its stakeholders.

Continue reading "Simon Again Increases Bid for General Growth Properties" »

Considered to be a bottom of the market deal, in July of 2008 the first two floors of 666 Fifth Avenue sold for $525 million to private equity firm Carlyle and Crown Acquisitions ("Crown"), as reported in the Wall Street Journal's article "Fifth Avenue Gem Is Back on Block." Carlyle and Crown have added value by buying out existing tenants with below market leases and re-leasing at higher market rents. Currently, 666 Fifth Avenue has an average rent of $2,500 per square foot.

Carlyle and Crown are now seeking to sell the first two floors for a price of between $600 million and $700 million. This will test New York City's decimated commercial real estate market. If they are able to obtain a 14% to 33% markup on their investment, the sale will signal that New York's commercial real estate market is on the rebound. It would also add between $18 million and $21 million to the city's coffers due to the 3% transfer tax.

Continue reading "New York's Premier Fifth Avenue Retail Property: Selling a Market Rebound" »

In our post "Brookfield Bids for General Growth Properties" we wrote about Brookfield Asset Management's ("Brookfield") $15 per share bid for General Growth Properties ("GGP"). In last week's Wall Street Journal Article "Simon Remakes Offer for Rival" it was reported that Simon Properties ("Simon") modified its initial takeover bid for GGP by using a similar model to Brookfield. Instead of attempting to merge two of the country's largest mall owners, Simon has decided to offer $6.5 billion, which includes a $1 billion commitment from hedge fund Paulson & Co., to finance GGP's exit from bankruptcy as a standalone entity. If Simon's bid is accepted, it would become one of GGP's largest shareholders. The revised deal structure is due to GGP's antitrust concerns over combining two of the largest domestic mall operators.

Continue reading "Simon Ups the Ante for General Growth Properties" »

The Wall Street Journal reported in its article "Farkas Scoops Up Centerline Holding" that Andrew Farkas's Island Capital Group ("Farkas") has purchased Centerline Holding Co. ("Centerline"). Farkas recapitalized the company with $100 million in new equity while also assuming $180 million in debt; preventing Centerline from falling into bankruptcy. Centerline is one of the largest commercial-mortgage servicing specialists.

Farkas purchased the Centerline unit which specializes in restructuring poorly performing mortgages that were previously packaged into bonds. This particular unit is a designated special servicer for about $110 billion of loans that were bundled into commercial-mortgage backed securities or CMBS. A special servicer decides whether to modify loan terms or foreclose on property once a loan goes into default.

Continue reading "New York Real Estate Investor Purchases Centerline Holding" »

Last week, Simon Properties Group Inc. ("Simon") made an unsolicited $10 billion bid to acquire General Growth Properties Inc. ("GGP") which equates to $9 per share. As reported in the Wall Street Journal's article "General Growth Plans Split-Up," it seems that Canadian real estate firm Brookfield Asset Management ("Brookfield") has made a bid for GGP. Brookfield's bid values GGP at $15 per share.

GGP plans to split itself into two entities upon emerging from bankruptcy by using financing provided by Brookfield. The plan was outlined as follows:

GGP Larger Entity

- The larger entity will (i) retain the General Growth Properties name and (ii) hold approximately 180 of GGP's 200 malls ("General Growth Properties")

- Brookfield has pledged to purchase 30% of General Growth Properties for $10 per share or roughly $2.5 billion

- General Growth Properties will remain encumbered with roughly $19 billion of mortgages

GGP Smaller Entity

- The smaller entity will (i) have the name General Growth Opportunities and (ii) hold GGP's less-valuable malls including 13 malls it intended to forfeit to lenders and the South Street Seaport mall in New York ("GGO")

- Brookfield will receive 7% of GGO after pledging $125 million or half of the $250 million that GGO plans to raise by selling shares at $5 a piece

- GGO will remain encumbered with roughly $1.2 billion of mortgages

Continue reading "Brookfield Bids for General Growth Properties" »

Last week, Simon Properties Group Inc. ("Simon") made an unsolicited $10 billion bid to acquire General Growth Properties Inc. ("GGP") which equates to $9 per share. This bid values GGP's equity at $3 billion while setting aside $7 billion to pay off unsecured creditor debt. It seems that Canadian real estate firm Brookfield Asset Management ("Brookfield") is getting ready to make a bid for GGP. As reported in the Wall Street Journal's article "Brookfield to Battle Simon for Mall Giant," Brookfield seems poised to make a bid to become GGP's largest shareholder while allowing GGP to exit bankruptcy as a standalone company.

It seems that Brookfield's bid may value GGP's equity at $3 billion just like Simon's, but would require that unsecured creditors accept equity in GGP along with a little cash. Brookfield has also lined up a consortium of investors to purchase GGP equity upon its emergence from bankruptcy. It is not clear whether the bankruptcy judge will allow Brookfield's plan since it does not repay unsecured creditors 100% of par value, as Simon's offer does. However, since Brookfield holds roughly $1 billion worth of unsecured debt it may be in a position to convince other unsecured creditors to take equity in the new GGP and a smaller amount of cash thereby helping to get Brookfield's plan confirmed.

Continue reading "Simon Unhappy with General Growth's Nondisclosure Agreement and Potential Brookfield Bid" »

Simon Properties Group Inc. ("Simon") made an unsolicited $10 billion bid to acquire General Growth Properties Inc. ("GGP") which equates to $9 per share. GGP is working to emerge from bankruptcy, so any deal would have to be approved by the bankruptcy judge overseeing the case and GGP's board. What is noteworthy is that if Simon's bid is successful it would own roughly 550 malls or one-third of the U.S. market. As noted in The Wall Street Journal's article "Mall Giant Simon Properties Bids for Rival General Growth," Simon would control half of the country's best performing enclosed malls according to total sales.

This type of control may create antitrust concerns. With this type of control Simon would be in a very strong position to dictate leasing terms to national tenants seeking space in Simon's prime locations. Simon might even be in a position to leverage its control to require tenants who want space in prime locations to take space in its less desirable locations. However, others argue that there will not be antitrust issues because the retail real estate market is comprised of more than just enclosed malls. Antitrust experts argue that this type of analysis must also account for open-air shopping centers, big box stores and online retailing.

Continue reading "Simon Properties Bids for General Growth Properties" »

As explained in Charles V. Bagli's New York Times article, "In City Real Estate, Old Clans Are Shrewd Again," LeFrak, Rudin, Durst and Rose are family names synonymous with New York commercial real estate success. Commercial real estate holdings held by these families date back to the early 1900s when their families emigrated from Eastern Europe. What makes these families so different from the modern day real estate moguls who now face refinancing pressures, the prospect of foreclosure or, worse yet, personal bankruptcy is staying power. These dynastic real estate families have been around for so long due to the following factors:

• They buy and hold property with a long term view
• They will only pay their price and will not pay anything more
• They use their own equity and a conservative amount of debt rather than OPM (Other People's Money) for a majority of the purchase price
• They do not go on buying sprees, making only a few purchases during a particular business cycle
• They budget and forecast to create reserves for economic down cycles

Upon reflection, the Great Recession makes me think of one of Warren Buffet's famous investing mantras: "Be fearful when people are greedy and greedy when people are fearful." The real estate bubble made these real estate families fearful, causing them to refrain from purchasing overvalued assets. Now that the bubble has burst, those who overindulged are in trouble affording these dynastic families an opportunity to become greedy to seek out deals at valuations that make sense.

Continue reading "New York Real Estate Royalty Teaches Boom Era Operators Financial Discipline" »