commercial real estate

DealBook: European Central Bank to Recover Most of Its Lehman Loans

January 19, 2012 by NewsMaker Leave a Comment

FRANKFURT — Some investors and creditors may have lost billions when Lehman Brothers went bankrupt in 2008, but it looks as if the European Central Bank will get almost all of its money back.

An effort of more than three years to unwind Lehman assets will recover almost all the 8.5 billion euros, or $11 billion, that the central bank stood to lose, Joachim Nagel, a member of the executive board of the German central bank, the Bundesbank, said Thursday.

The Bundesbank has managed the disposal of assets that the failed investment bank used as collateral for European Central Bank loans. The Bundesbank said Thursday that it was close to selling one of the last remaining assets, a complex package of real estate loans known as Excalibur.

‘‘When we’re all done, we will come close,’’ Mr. Nagel told reporters at a briefing.

Lehman’s German unit had used 33 securities as collateral to borrow 8.5 billion euros from the European Central Bank before its collapse in September 2008. Afterward, the European Central Bank — or strictly speaking, the so-called Eurosystem network of euro-zone central banks — was stuck with the assets.

Initially, the Bundesbank estimated the probable losses at 5.7 billion euros, but continuously reduced that figure as markets for the assets recovered and they could be sold for more than expected. In addition, some of the holdings continued to pay interest or dividends.

Of the 33 Lehman securities, 28 have been sold. The largest remaining asset is Excalibur, a package of loans and derivatives based on European commercial real estate mortgages. Lehman constructed Excalibur in 2008 and used it to borrow 2.16 billion euros from the European Central Bank, the Bundesbank said.

The Financial Times reported on Thursday that Lone Star Funds, an American private equity company that specializes in distressed debt, would buy Excalibur for 1.8 billion euros.

The Bundesbank did not confirm the report, saying that talks to sell Excalibur are not yet concluded. But the bank noted that only a few large investors would be able to handle an asset of that size and complexity.

Lone Star did not immediately respond to a request for comment.

The remaining four Lehman assets are relatively small, Mr. Nagel said.

While the European Central Bank will get back almost all the money that it lent to Lehman, it may still suffer an unspecified loss, plus the considerable cost of administering and winding down the assets.

Mr. Nagel conceded that central bankers might not have scrutinized the assets closely enough when accepting them as collateral. Standards have since been tightened, he said.

‘‘It went well,’’ Mr. Nagel said of the asset sales, ‘‘but should remain the exception.’’

Mark Scott contributed reporting from London.

Article source: http://feeds.nytimes.com/click.phdo?i=12eddd66afd89be6407dd094dc771fe4

You’re the Boss Blog: Is Bank of America Trying to Shed Small-Business Customers?

January 10, 2012 by NewsMaker Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

Bank of America has once more found itself on the defensive over small-business lending, in the wake of a Los Angeles Times report that said the bank is demanding some borrowers to “pay off their credit-line balances all at once instead of making monthly payments.” According to the report, customers who can’t pay in full “are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.”

The claim that Bank of America is casting off its small-business customers — “systematically,” as The Times put it — probably would not surprise many observers. Back in the fall of 2008, the bank’s then-chairman and chief executive, Kenneth Lewis, called its small-business loan portfolio a “damn disaster.” Since then, that portfolio, as reported to the Federal Deposit Insurance Corporation, has shrunk by nearly a third, though the decline has occurred principally in small commercial real estate loans. (Small commercial and industrial loans have actually increased slightly, according to F.D.I.C. data.)

More recently, The Agenda has reported that from 2006 to 2010, Bank of America’s Small Business Administration general business lending fell by 89 percent. Rohit Arora, chief executive of Biz2Credit, which helps small businesses find new loans, said many of his prospective clients are current Bank of America customers. “We are finding pretty consistently that bank of America is almost at the top of the list of banks whose existing customers are shopping around for other avenues right now,” he said.

But Bank of America argues that the concern in this most recent instance is overblown.

It is true that Bank of America notified thousands of borrowers with revolving credit lines that their loans would come due in full. But Jefferson George, a spokesman for the bank, said that the intention was not to force immediate repayment or higher interest rates. Nor did the notices take aim at poorly performing businesses, or businesses in industries or parts of the country where the bank felt overexposed. Instead, he said, it was to rewrite the agreements for a small portion of its line-of-credit loans, giving the bank more control over the terms.

In a revolving line of credit, a company can borrow up to a set credit limit, and as it pays off existing debt, the amount of credit available for borrowing increases. (A credit card is a common kind of revolving credit.) Typically, revolving credit lines last for a year, whereupon they are automatically renewed. But loan officers at Bank of America, and at some of the banks it acquired, opened some credit lines without maturities or formal renewal processes. It was these loans, said Mr. George, that the bank was trying to rein in. “We had a small percentage of clients who had a product that wasn’t in line with our current credit products,” he said. “And all we did was added a maturity date and a renewal process.

“I don’t want to minimize this,” Mr. George continued. “It is a change for customers, and that’s why we gave them a year’s notice.”

In one version of the letter Bank of America sent to clients, dated November 2010 and provided by Mr. George, the bank did indeed set an expiration date for the line of credit, in January 2012, and added terms to the loan agreement that required the borrower to “repay in full any principal, interest or other charges outstanding” by the new expiration date. However, it also said that the credit line could be extended with a separate written renewal notice from the bank — albeit potentially with new terms.

Mr. George would not say on the record how many small-business borrowers became subject to maturity dates and renewals. But he said that the group amounted to “a very small percentage of our roughly 1.5 million small-business credit customers.” Of these, he said, “the majority of customers — more than 90 percent — qualified for renewal at the same rate. The others had the option to pay in full or restructure their agreement with different terms.” Mr. George added that he was unaware of any instance where a customer was not offered an extension one way or the other.

In all, Mr. George said, “98 percent of customers in this small, specific group” have renewed their loans on basically the same terms (but with a maturity date and renewal) or on new terms, which probably included a higher interest rate, a reduced credit line, or both. In some cases, lines of credit became term loans. The number of borrowers with whom Bank of America has not reached any agreement, Mr. George said, amounted to one-tenth of 1 percent of those small-business credit customers. One-tenth of one percent of 1.5 million would be 1,500 customers — not exactly a sweeping retrenchment from the small-business credit market.

Bob Coleman, who publishes a newsletter for the S.B.A. lending industry, said Bank of America is acting prudently by changing the terms of its lines of credit. The borrowers who’ve been left behind, at least as described in The Los Angeles Times article, appear to have been abusing the system. “A line of credit is you borrow the money from the bank, you pay your vendors, and a few months later, you pay back the bank, and you do it again next year,” said Mr. Coleman. But some borrowers, he said, turn what is meant to be a seasonal tool into an evergreen, and effectively never pay down the principal on their lines of credit.

That’s always been a problem for banks, Mr. Coleman said, but it is becoming more untenable today. “The regulators will not allow you to have an evergreen loan,” said Mr. Coleman. “If you have a $100,000 line of credit, and all you’re doing is making interest payments, regulators are going to say that’s not a line of credit, that’s a loan.”

Still, The Los Angeles Times also reported that Bank of America took the opportunity while restructuring these credit lines to add a fee. (So-called commitment fees are typical in revolving lines of credit.) Mr. George acknowledged that the renewal terms call for an annual fee of 1 percent of the commitment, up to $500. But, he added, “in many cases, the fees are reduced, or even waived, based on our relationship with the client.”

Article source: http://feeds.nytimes.com/click.phdo?i=ea6a3a451d8a84bd26cb0875e37088b4

Filed Under: Small Business Tagged With: arora, commercial real estate, deposit insurance corporation

Square Feet: Industrial Real Estate Is Attracting Investors and Builders

September 14, 2011 by NewsMaker Leave a Comment

Developers and investors are starting to make big bets on industrial real estate, following signs that consumers may be starting to spend again. Sales of such properties have jumped nearly threefold from last year, according to figures from commercial real estate companies, and the vacancy rate has fallen for three consecutive quarters.

The industrial market is often a leading indicator for commercial real estate, improving before the office market. This is because when companies begin seeing increased demand from consumers their first steps are to increase production and ramp up inventory. “Only then do they hire new employees and look to grow their offices,” said Robert C. Kossar, a managing director and the head of the industrial real estate group for New York and New Jersey at Jones Lang LaSalle.

Signs of the market’s growth are apparent in the New York metro area. On a brownfield site in Edison, N.J., the J. G. Petrucci Company is building a 570,000-square-foot warehouse even though the developer has not lined up a single tenant. It is one of the first industrial properties built on spec in New Jersey since the recession.

“The timing is right because while rents are still low, there are clear signs that the market is tightening,” said James G. Petrucci, the company’s president. “I am confident that there will be any number of companies wanting this space by the time it is completed.”

In the first half of this year, the vacancy rate declined to 9.7 percent, its third quarterly decline and its lowest level since the first quarter of 2009, according to Cushman Wakefield. During the same period, a total of 70 million square feet traded hands, an increase of nearly 160 percent, the brokerage firm said. And year-to-date, leasing activity has risen more than 27 percent to 205 million square feet, compared with the same period last year, the company’s research showed.

“If you look at the fundamentals over the past six months or so, there is very strong leasing, declining vacancies and positive net absorption,” said Tim Wang, a senior vice president at Clarion Partners, which last month purchased 2.8 million square feet in industrial properties from Prologis Inc. for $118 million and is looking for other acquisitions. In addition, “industrial properties are very simple to operate,” Mr. Wang said. Even large buildings typically have only one or two tenants; they are less capital-intensive because landlords do not offer tenant improvement allowances or other terms common in office leases; and the cash flow from the rent is mostly stable and predictable.

Clarion Partners is one of several companies that have been increasing their industrial properties. Among the biggest buyers is Blackstone, which had meager holdings in the sector before spending $2 billion to acquire 275 industrial buildings earlier this year. Other companies that are buying aggressively include Terreno Realty Corporation, Morgan Stanley, the Cabot Group and CenterPoint Properties, according to Jones Lang LaSalle.

Matrix Development Group, a private company with offices in New Jersey and Pennsylvania, recently joined with Morgan Stanley to acquire a 265,000-square-foot warehouse in Robbinsville, N.J. The company is also constructing a 150,000-square-foot industrial building for the beverage distributor Ritchie Page, also in Robbinsville.

“We are at the inflection point in the market,” said Alec Taylor, a principal of Matrix Development. “Building values are still low, but rental activity and absorption rates are improving. Now is the time to buy buildings and in six months to a year, lease them up and improve their value.”

Ports also play a role in industrial real estate, and in New Jersey investors are making big bets that port business will increase. This is in part because of a $5.25 billion project to widen the Panama Canal by 2014. The widening will allow large cargo ships that currently anchor in California and use trucks or the railroad to move goods to the East Coast to sail directly to New Jersey.

The widening of the canal could mean big business for Port Newark-Elizabeth, and to prepare for an influx of larger ships the Port Authority of New York and New Jersey plan to raise the Bayonne Bridge by 2016.

“There is a growing need for shipping that is not showing signs of abating anytime soon,” said Dave Adams, the president of Port Newark Container Terminal, one of five major terminals at Port Newark. The terminal is positioning itself to take advantage of the improving market conditions. This summer, it extended its lease with the Port Authority, which owns the port, to 2050 and agreed to invest $500 million in capital improvements.

“Our goal is to be able to double the capacity of our facility from about 650,000 shipping containers a year to 1.2 or 1.3 million,” Mr. Adams said.

But while the market for larger properties, usually 300,000 square feet or more, that cater to the biggest beverage or food distributors or major retailers is showing improvement, the market for spaces of 50,000 square feet and under is still struggling.

“There is a disconnect in the market,” said John Huguenard, a managing director and head of national industrial investment sales at Jones Lang LaSalle. “Entrepreneurial businesses haven’t come back the way big business has.”

In Long Island, for example, where the industrial market mostly serves local businesses, “the vacancy rate is around 6.2 percent, which sounds good,” said Jack O’Connor, a principal and director of the national industrial practice group at Newmark Knight Frank in Long Island. “But that is because none of the firms track buildings under 20,000 square feet. If they looked at the smaller industrial spaces, they would see a vacancy rate of 10 percent to 11 percent.” Prices also have dropped: in 2007, smaller warehouses sold for $125 a square foot, but today the price would be closer to $75 a square foot, Mr. O’Connor said.

Smaller properties are languishing, Mr. O’Connor said, “because banks aren’t lending, and people have no equity in their homes to take out second mortgages to finance new businesses.”

And even the growth in the market for large industrial properties comes with cautions, experts say. “The volatility in the financial markets and the picture of a slow recovery, especially with employment, is having a guarded effect,” Mr. Kossar said. “The signs are trending in the right direction, they are all pointing toward a recovery, but it is a cautious optimism.”

Article source: http://feeds.nytimes.com/click.phdo?i=08a4c73d355915d04de1e5ef31c0f158

Filed Under: Business News Tagged With: commercial real estate, consecutive quarters, real estate group

You’re the Boss: Are You Paying Too Much for Space?

July 28, 2011 by NewsMaker Leave a Comment

Today’s Question

What small-business owners think.

We’ve just published a small-business guide by Eilene Zimmerman that offers several examples of small-business owners who have taken advantage of one bright spot in a dark economy — a favorable market for leasing or buying commercial real estate.

Among the lessons that emerge from their experiences are these:

• Be proactive. Get out in front of your lease so you have to time to create options. Start looking a year ahead if possible.
• Hire a real estate broker. A good broker knows the local market and material facts about specific buildings: environmental issues, whether the owner is in bankruptcy, how long it’s been vacant. Those facts can be used as leverage.
• Make sure your current landlord knows that you have hired a broker and that you are serious about getting a better deal — even if you have to move.
• No matter how great the deal, moving can be expensive and cost more than you planned, especially if you have to modify the space. Figure out how many years it will take for the deal to pay off.

Have you managed to take advantage of the real estate market? Please tell us what you have done.

Article source: http://feeds.nytimes.com/click.phdo?i=a8b955135b35d9dd796195231e4da74e

Filed Under: Small Business Tagged With: boss, commercial real estate, economy

Square Feet: An Unexpected Trend Toward Office Sublets

June 8, 2011 by NewsMaker Leave a Comment

Venable is one of a number of major tenants that have recently converted sublease space into direct leases, a trend that is being driven by the tightening commercial real estate market.

Conventional wisdom holds that subleasing — in which tenants vacate their offices before the end of their lease and rent it to another tenant at a discount — has a negative impact on the market. Landlords must compete against the lower rents, while tenants bristle at the restrictive terms that often are a part of a sublease.

But the industry perspective is now shifting. Tenants are embracing subleases as a means of locking in below-market rents, while landlords, who are facing fewer vacancies, are using it to attract tenants and then converting the leases into direct deals when the subleases expire.

“Landlords don’t usually like the fact that sublease space rents for less, and tenants don’t like that the leases offer little flexibility,” said Moshe Sukenik, an executive vice president and principal at Newmark Knight Frank who represented Venable. “But there is a silver lining that can result in a win-win for everyone involved.”

Over the last 18 months, the availability of sublease space has sharply contracted. As of April, the inventory in Manhattan over all, as measured in square feet, was down nearly 40 percent compared with October 2009, according to data from Newmark Knight Frank. Downtown recorded a 40 percent drop, while in Midtown, it was 35 percent. In the Midtown south area, that figure was close to 47 percent.

“We are going to see the sublease space that is still available be rapidly absorbed,” said Mark A. Jaccom, the chief executive of the tristate region for Colliers International. He said he was working with four tenants now in sublease space in Midtown that were negotiating to convert their agreements into direct leases.

Steven M. Durels, an executive vice president and the director of leasing and real property at the SL Green Realty Corporation, said: “When doing these kinds of deals, we do not have to contribute any money to tenant improvements and we don’t have to offer any free rent” to the sublease tenants. “The inducement to the new tenant is embedded in the economics of the sublease, while for us, we eventually get full market rent with no transaction costs.”

Another method by which sublease space is being reduced is through buyouts, where tenants who want to leave before their lease expires can pay a fee to the landlord, who then re-lets the space, ideally at a higher rent. SL Green, a real estate investment trust, employed this strategy at 1185 Avenue of the Americas, where it is the landlord. Bank of America wanted to vacate two floors before its lease expired, but rather than subleasing the space, it paid SL Green a fee to be free of its lease obligation. SL Green then re-let the space, including 27,712 square feet on the second floor of the building to Ally Financial and 24,692 square feet on the 24th floor to the News Corporation. As a result, Mr. Durels said, “we were paid a buyout fee and were able to rent out the spaces at higher rents than what Bank of America had been paying us.”

“A few years ago, when we had higher vacancy rates, there wasn’t much of an incentive to get involved in sublease deals,” said Dennis Friedrich, the president and chief executive of United States commercial operations for Brookfield Office Properties. “Now that vacancy rates are much lower, we are helping existing sublease tenants convert their leases into direct deals.” Brookfield recently converted a 175,000-square-foot sublease with Commerzbank and a 250,000-square-feet sublease with OppenheimerFunds at 2 World Financial Center into long-term direct leases.

Such deals can be economical for tenants. The online high-end clearinghouse Gilt Groupe recently signed a direct 10-year lease at 2 Park Avenue after subletting space at the building for two years, doubling its offices to 100,000 square feet.

“We had a great deal on the sublease space — it was roughly a 75 percent discount to the market rents because the term was so short,” said Melanie Hughes, the chief human resources executive at Gilt Groupe. And even though Gilt is facing a rent increase by signing a direct lease for the space, “there were several compelling reasons for staying here instead of moving somewhere new,” Ms. Hughes said.

Among them: Employees had grown comfortable in the space, and there were low costs associated with any build-out since the offices came equipped with furniture from the previous tenant, Yahoo. Gilt had also already established a good working relationship with the landlord and was comfortable with the level of service at the building.

But some executives say they believe that, from a landlord’s perspective, encouraging subleasing is not good business. “Sublease space degrades the value of a building because it always rents for cheaper,” said Mitchell Arkin, an executive director of Cushman Wakefield. “No owner that I have ever worked for has thought that subleasing at a lower rent is better than signing a direct lease.”

During this downturn, however, sublease space may have proved to be somewhat less of a drag on the market. That is because there has been less of it, said James Delmonte, a vice president and director of research for the New York office of Jones Lang LaSalle. During the last downturn, sublease space peaked at 45 percent of the overall available Class A space in Midtown in 2002. This time, it peaked at just 35 percent.

“So in previous downturns, landlords couldn’t raise rents because they had to stay competitive with sublease availability,” Mr. Delmonte said. “But this time around, there isn’t as much sublease space, so landlords are raising rents more readily.”

Venable, the law firm, said a sublease-to-direct-lease transaction was the perfect fit. When the original deal was signed in October 2007, the firm had been in New York for only a handful of years, and “a sublease was a nice way to be conservative about our growth options while still committed to a presence here,” said Edmund M. O’Toole, the partner in charge of the New York office for Venable.

While the five-year sublease from the law firm Seyforth Shaw was for the 24th through 26th floors, the new, 10-year direct lease extends the offices into part of the 27th floor, for a total of nearly 62,000 square feet.

Tishman Speyer, Venable’s landlord at 1270 Avenue of the Americas, is providing the firm with two floors of temporary space while its offices undergo the multimillion-dollar renovation, which is expected to be complete by the end of November.

Article source: http://feeds.nytimes.com/click.phdo?i=de02db9aafbde685e7c926c36886911f

Filed Under: Business News Tagged With: commercial real estate, subleases, vacancies

Square Feet | The 30-Minute Interview: Ronald Dickerman

May 21, 2011 by NewsMaker Leave a Comment

Mr. Dickerman, 47, is the founder and president of Madison International Realty, a real estate private equity firm, which through its investment funds holds ownership stakes in buildings around the world, including several in the New York area, among them the Chrysler East Building and 520 Madison Avenue. The company has also had investments in the Seagram Building over the years.

Q Tell me about your business.

A I think we do something very unusual in the world of commercial real estate and investing: we acquire ownership interests in Class A assets from existing investors looking for an early exit strategy. Our objective is not to seek control of the properties — it’s to provide liquidity, which means buy their interest. We’re not a loan-to-own shop.

Q What do you mean by an “early exit strategy”?

A A sale. Usually these are finite holding periods — it may be 5, 10, 15 years — for the overall venture. When you look at all the properties down Park Avenue, for example, even though the name plates in the lobby may say “RFR Realty” or “Brookfield” or “Tishman Speyer,” they don’t own 100 percent of the equity. They have partners. And partners change their minds, have different investment objectives, and they need liquidity at different points of time.

Q What is the liquidity you provide typically used for?

A To redeploy into other investment opportunities, to fund other liabilities within their portfolio.

Q What percentage of your portfolio is in the New York area?

A A large percent — I would say about 35 to 40 percent.

Q How large is your stake, on average?

A I would say 25 to 49 percent.

Q How do you and your investors profit from these arrangements?

A We would be entitled to our pro-rata share of the revenue and cash distributions. But the big payday is selling the buildings sometime in the future.

We have a contractual right to trigger a sale of the portfolio after seven or eight years of joint ownership, or they buy back our interest at appraised value.

Q What kinds of returns are your fund investors seeing?

A Our overall return profile is between 17 and 18 percent gross; that’s an annualized rate of return for realized investments.

Q Do you also help to add value to your holdings?

A We invest in core Class A assets where the building itself is relatively stable and the deal is not distressed. What’s distressed about the transaction is the fatigue of the underlying investor.

We do, however, make value-creation recommendations to our sponsor. For example, we have a building on the East Side in a joint venture with RFR Realty, called Eastbridge Landing. It’s a Class A doorman apartment building, and we made recommendations about new lobby amenities like a concierge service, and new paint and carpet in the elevators and the lobbies.

Q How is business lately?

A I’ve never been busier in terms of our transaction pipeline. Just in the last three to six months we’ve seen a significant increase in the amount of partial stakes that investors are bringing to the market.

Q You recently announced a deal to acquire a 49 percent interest in 15 retail and entertainment properties owned by Forest City Ratner.

A They came to us, I think, in September 2010 to fund their go-forward investments. You may know that the Atlantic Yards development is something like $4 billion.

These properties are as core as core can be. They’re 99 percent occupied; the average lease term is over eight years.

Q You recently raised your stake in Chrysler East. Why?

A To about 48 percent from about 35 percent. That’s a joint venture with Tishman Speyer.

We actually invested through a secondary acquisition from existing investors. That property is a joint venture between Tishman Speyer and a German syndication of individual investors. There was a significant number of German investors who wanted to sell their interest.

Q Can you talk about any other deals you might be working on?

A We have a lot of interesting deals going on between the U.S., London and Paris.

Q Your family once owned a business in the Boston area, rehabbing and selling buildings.

A That’s true! I was involved when I was younger in the maintenance crew, cleaning hallways and pools. It was a terrific foundation for the real estate business.

Q So are you still a Red Sox fan?

A I have become a Yankee fan.

It was hard to be a Red Sox fan when I was growing up.

Article source: http://feeds.nytimes.com/click.phdo?i=38691552ef3859a96058d6968ea4f0cf

Filed Under: Business News Tagged With: commercial real estate, liquidity, minute interview

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