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‘Everything is on the Table’ in China Real Estate Sell Off

“Everything is on the table.”

That is how one executive from a prominent New York-based landlord described the current position of the Chinese government’s freshly imposed, forced liquidation of its top conglomerates’ most valuable trophy real estate assets.

In June 2017, Beijing singled out HNA Group, Anbang Insurance Group, Fosun International and Dalian Wanda—its four largest private conglomerates—as having borrowed too aggressively for offshore transactions. And in August 2017, China’s State Council formalized restrictions on foreign acquisitions.

“I think those firms that have been identified are trying to aggressively unwind what they did,” the New York-based landlord executive, who’s firm is a potential bidder on major Chinese assets that have hit the market, said on the condition of anonymity. “You’ll see transactions from those companies to recapitalize or release the assets in order to get relief and repatriate capital back into China.

“They’re all acting with a degree of urgency as they’ve been told that they need to manage through these [assets] quickly,” the executive added. “I think Fosun’s purchases were made earlier in the process so they’re in better shape.”

Chinese conglomerates and private companies have been a seemingly unstoppable investment force over the last few years, pouring hundreds of billions of dollars into real estate, sports and entertainment ventures.

“The Chinese view real estate like having gold stashed in your mattress,” said Adams Lee, an international trade lawyer for Seattle-based law firm Harris-Bricken.

But those mattresses are now overstuffed because Chinese dealmakers have overreached, according to Chinese government regulators. The government’s solution was a clampdown on the superabundance of risky, debt-fueled offshore investment and a forced liquidation of assets in order to bring cash back to China and insulate the country’s slowing economy.

And it shows. Chinese investment in U.S. commercial real estate fell roughly 65 percent to $5.5 billion in 2017 from approximately $16.1 billion the previous year, according to a January 2018 report from Los Angeles-based asset manager TCW Group.

This has put some of China’s highest-profile U.S. trophy assets, held by its richest entities, on the market, leaving many local industry players in gateway markets in limbo, waiting on the first sales to take place. Which domino will fall first, however, is unclear.

“We’re looking at the New York-area properties [that could be sold],” the anonymous landlord said. “I think for those [major conglomerates], it’s probably their entire portfolio [is on the table]…Will [Anbang Insurance Group] keep the Waldorf? Is Anbang going to sell the [Strategic Hotels] hotel portfolio? They’re looking closely at these assets, but I don’t think they’ll fire sale them.

“They’re looking for ways to create liquidity and a reduction of debt, and the problem is they overpaid for a bunch of these assets, so that’s going to make it harder,” the landlord added. “What we’ll see is more structured transactions to help them liquidate a substantial portion of the asset but that keeps them in [a deal] so they can play in recovery and long term growth over time.”

HNA Group—which owns roughly $14 billion of real estate across the globe, according to information from Real Capital Analytics—set its target at $16 billion in assets it’s looking to sell in the first half of this year as it deals with a $29 billion debt shortfall over the next few quarters, according to Bloomberg. It has been marketing some of its commercial properties in New York, Chicago, San Francisco and Minneapolis—valued at $4 billion, according to a marketing document seen and reported first by Bloomberg in early February. Its New York assets include 245 Park Avenue, a 1.8-million-square-foot office tower purchased for $2.2 billion in May 2017, 850 Third Avenue and 1180 Avenue of the Americas. The latter was sold to Northwood Investors for $305 million on Feb. 15—HNA nabbed the 327,766-square-foot building for $259 million from the Carlyle Group in May 2011, according to records filed with the New York City Department of Finance.

“The sheer sizes of these transactions will limit the players [who can compete for them], but there will be enough players to create a competitive environment—it just depends on what the deals look like and what they’re willing to do,” the landlord said. “Like 245 Park Avenue, [HNA] paid way above the market, so they’ll have a hard time selling it outright, but if they want to engage in a structured transaction, they may find success where they subordinate some of their position.

“I think right now that’s kind of where things are,” the source added. “They’re definitely out there, trying to transact, so I think you’ll see a flurry of activity over the next few months, and we’ll start to see what the deals look like. The Chinese have had the outlier bid for a few years, and that’s what’s upped bid prices. Now that it’s removed itself from the market, it has to settle itself with price discovery.”

HNA is currently weighed down by $90 billion in debt, Bloomberg reported in late January. That month, the conglomerate told creditors in a meeting in the Hainan province—where it’s based—that it was facing $2.4 billion in maturing debt in the first quarter. HNA said at the meeting that it expects this to be offset as 2018 progresses and as it ramps up the offloading of its assets.

But Chinese regulators are waiting to get a full lay of the land as it relates to potential offers for its trophy assets, one New York-based real estate lawyer close to the dealings told Commercial Observer. “I’d be very surprised to see if there’s an auction,” one official at a Chinese investment bank told CO. “They could be sold off if they like the price, but there’s not any hurry on their part.”

Anbang and Fosun International thrust themselves into the public eye with a couple of high-profile deals a few years ago. Anbang purchased the Waldorf Astoria for a whopping $1.95 billion in February 2015—a record for a single hotel asset—and Fosun helped bolster the initial investment surge with its $725 million purchase of Chase Manhattan Plaza—now 28 Liberty Street—in October 2013, which Deutsche Bank and HSBC refinanced for $800 million in November 2017, as CO first reported.

Anbang didn’t stop there, though. It then bought the Strategic Hotels & Resorts portfolio from Blackstone Group for $5.4 billion in March 2016, just before abruptly abandoning its $14 billion offer in a bidding war with Marriott International for Starwood Hotels & Resorts at the end of the month. Anbang also scooped up 717 Fifth Avenue—a 26-story, roughly 350,000-square-foot office tower and home to its U.S. headquarters—from Blackstone in February 2015. Anbang and Blackstone have been in talks recently for the private equity giant to reacquire the Waldorf and the 16-property Strategic Hotels & Resorts portfolio, The Real Deal reported. A source close to  the proceedings recently told CO that Blackstone is unlikely to pursue the Waldorf.

“A joke we’ve had here is that Blackstone is going to end up buying back the properties they sold,” the Chinese bank official said. “We’ve been expecting this for a year. We knew about Anbang for a while now. There’s going to be a lot of interest in Anbang’s assets.”

In March 2017, on a high from previous record-setting acquisitions, the insurance giant backed out of discussions to buy a stake in Jared Kushner’s 666 Fifth Avenue office tower, as part of a $7.5 billion plan to redevelop the property into a condo and retail building.

“[The negative press] on 666 Fifth didn’t help [Anbang’s case, leading up to the crackdown,] at all,” the Chinese bank official said. “I think it’s more that the regulators gave warnings to the Anbang chairman, and they felt he wasn’t paying attention. I think [President Xi Jinping] felt [Anbang Chairman Wu Xiaohui] was trying to sneak by with whatever he could while he could.”

In January, Bloomberg reported that Dalian Wanda was looking for a buyer for its stake in a roughly $1 billion project called Vista Tower, a 98-story skyscraper in Chicago. In November 2017, Wanda’s partner in the project, Magellan Development disputed claims that Wanda was looking to sell its stake in the project. Vista Tower is one of two of Wanda’s roughly $5 billion in remaining overseas holdings, including a $1.2 billion hotel and condominium complex in Beverly Hills, Calif.

Wanda’s wave of activity came in the wake of its founder Wang Jianlin’s March 31 deadline to pay $510 million in bank loans used to finance the firm’s decade-long offshore expansion.

“President [Xi Jinping] looks like he’s trying to consolidate power on his side and trying to rein in the big mega-conglomerates in China that have gotten out of control in terms of their acquisitions, which were very random and haphazard,” Lee said. “I guess the question now is, Is it going to happen to Fosun next? Is it Alibaba on the chopping block, or Tencent? It’s not like those companies haven’t been purchasing assets, but it seems those companies have had more of a strategic plan in purchasing, and maybe that’s why they haven’t been targeted. Some of the others [like HNA and Anbang] seem to be buying randomly.”

Some Chinese entities may be safer than others, one executive from a private equity firm who works with Chinese investors said.

“The Chinese government will allow their favorites to go out and do business,” the executive said. “What they don’t like is Anbang’s drawing attention, showing wealth and power. Wealth and power in China is the Communist Party. I’m amazed how we get approval sometimes; they’re scared to take it to their bosses. It has to be perfect. They are sensitive.”

HNA Group Chairman Chen Feng told Reuters in January that a liquidity problem exists because the conglomerate engaged in a number of mergers, even as the external environment became more troublesome and China’s economy “transitioned from rapid to moderate growth,” which impacted the group’s access to new financing.

“Rate hikes by the Federal Reserve and deleveraging in China caused a liquidity shortage at the end of the year for many Chinese enterprises,” Chen told Reuters. And, in a surprise showing of optimism, he added, “we’re confident we’ll move past these difficulties and maintain sustained, healthy and stable development.”

Last month, the Chinese government and President Xi Jinping seized temporary control over the debt-burdened Anbang Insurance Group, after first detaining its founder, Wu Xiaohui, last summer, charging him with fraud and embezzlement in Shanghai, according to Bloomberg. It was the first public sign of the government’s crackdown on its overly aggressive conglomerates. By the end of February, it was reported that Chinese government officials had pivoted their position on HNA and had been encouraging state-owned banks to keep lending to the conglomerate, people familiar with the matter told The Wall Street Journal.

“The window was not going to last forever to invest out of China,” the Chinese bank official said. “[Wu] invested as much as he could. Around this time, Chinese currency was depreciating, and in his currency, he’s got a profit. So, he didn’t care what people were bidding but wanted to get in quickly and in a hurry. As a result people think he overpaid.

“The way to think about it is that in China, [Wu] was drawing attention to himself while all the attention was going to one leader recently,” the Chinese bank official added. “Meanwhile, several of the big private real estate names were being told to stop drawing attention to yourselves. [Wu] was not fitting with the country’s policy, which was that capital was meant to be invested externally, but only if beneficial for the government.”

After the Anbang seizure, the government instituted rules—like a 36-point investment code of conduct for its private companies—significantly restricting some forms of investment, including real estate acquisitions, and outright prohibiting others.

“Commercial real estate is restricted. It’s not prohibited,” said Jerome Sanzo, the head of real estate finance at the Industrial and Commercial Bank of China (ICBC). “It’s not going to completely dry up, so the net effect is that you’re not likely to see another acquisition like the Waldorf or 245 Park. Those days are over, but real estate investment overseas is not completely prohibited. I would say generally, there will still be investment, but it will be a much less speculative play. I don’t think you’ll see the large, splashy investments.”

This may open up a flurry of competition in the near term. The expectation is that high-profile funds and local players in gateway markets will come to the fore now that the Chinese have  been ejected.

“The funds that raised these billions over the last several years, like Blackstone, Blackrock, Apollo, the companies with serious available cash that they can deploy when they see a good opportunity and there’s so much local cash on the sidelines—they’re all just waiting,” one New York-based real estate lawyer who represents Chinese buyers said.

While it remains to be seen how these trophy assets unfold on the market, many industry players expect strong Chinese outbound real estate investment to return to the fold in the very near future, once the country’s economy stabilizes.

“[The Chinese] are still in the mix of things, and they want to know what’s going on,” the New York-based landlord executive said. “They’re still interested in opportunities, shifting into more demographically right areas like assisted living and student housing, and they’re looking for potential opportunities on the retail side.”

The real estate attorney who represents Chinese buyers told CO that Chinese investment arms are planning a purchasing comeback, but that they aren’t expecting to be comfortable until late 2019 at the earliest.

Source: commercial

Snap Inc. Retreating in Venice by Putting 163K SF on the Sublease Market

Snap Inc., the parent company of disappearing messaging app Snapchat, has relinquished 14 of its prime Venice Beach office locations, amounting to a total of 163,000 square feet, for sublease. The organization is consolidating those offices into a central location in nearby Santa Monica, according to CoStar Group.

The 14 Venice locations represent more than half the space Snap occupies in the city. Those properties range from 2,800 square feet in a historic building on hip shopping and dining street Abbot Kinney Boulevard to 44,887 square feet in a low-rise glass building known as Thornton Lofts at 619-701 Ocean Front Walk on the Venice Boardwalk. The terms range from two years to six years, with rents between $4 and $11 per square foot, CoStar reports.

Snap’s move to depart Venice comes in the wake of protests by Venice residents who feel Snap’s presence has fundamentally changed the artsy and alternative vibe—think the East Village in New York City before its gentrification—according to Curbed. In response to protests, Snap announced in March that the company would “[concentrate] our future growth outside of Venice, Curbed noted in another piece.

Snap has tapped Los Angeles-based Industry Partners and JLL to handle the sublease. Representatives at JLL declined to comment while those for Industry Partners and Snap Inc. did not respond as of press time.

Founded in Venice in 2010, Snap is retaining the offices of Chief Executive and Co-Founder Evan Spiegel, a 6,000-square-foot building at 63 Market Street. Since its inception, Snap has preferred to lease or buy a number of small buildings in the area rather than have an official centralized headquarters. However, that strategy appears to be changing.

Valued at $3 billion when Snap went public last February, indicated that the disperse nature of its locations was a rising concern, stating in its filing with the Securities and Exchange Commission: “…because our office buildings are dispersed throughout the area, we may be unable to adequately oversee employees and business functions. If we cannot compensate for these and other issues caused by this geographically dispersed office structure, we may lose employees, which could seriously harm our business.”

Last year the company went public and bet big—leasing more than 300,000 square feet of office space at the Blackstone Group’s Santa Monica Business Park in what is believed to be the largest commercial real estate transaction the tech company has made to date. Financial terms of the lease were not available, but Blackstone was asking $4.65 to $4.95 per square foot at the park, according to CoStar.

That deal came after Snap signed a six-year lease in September 2016 to take over 79,000 square feet of office and hangar space at Santa Monica Airport, as the Los Angeles Times reported. A spokeswoman for Blackstone declined to comment.

Source: commercial

MetLife Gives $120M for Rockpoint’s LA Office Building Buy

MetLife Investment Management announced last week it provided $120 million to Boston-based real estate private equity fund Rockpoint Group for the acquisition of a Miracle Mile, Class-A office property at 5670 Wilshire Blvd. in Los Angeles.

The 10-year, fixed-rate loan closed on Jan. 3, marking MetLife’s first closed deal of 2018, Gary Dinka, a managing director within MetLife’s debt strategies group, told Commercial Observer. Brokerage Eastdil Secured acted as the deal’s intermediary, according to Dinka.

“This deal came about via our relationships with both the sponsorship Rockpoint and intermediary Eastdil,” Dinka told CO. “With our local presence in L.A., we naturally were aware of the real estate and the acquisition while it was in the works. The location, repeat borrower and fresh equity were just some of the attributes of the deal that we liked.”

Rockpoint purchased the the 27-story, 445,004-square-foot building from Blackstone Group in April 2017 for $215 million, or $483 per square foot, The Real Deal first reported, marking a big win for Blackstone, which had paid $137 million for the building in 2006.

Officials at Rockpoint Group could not immediately be reached for comment. A representative for Eastdil Secured did not immediately return a request for comment.

Source: commercial

Blackstone Lends $360M on CIM’s Acquisition of 1440 Broadway

CIM Group has sealed its acquisition of 1440 Broadway from New York REIT with a $360 million loan from Blackstone Group, Commercial Observer can first report.

The deal closed yesterday and the floating-rate debt has a five-year term, sources said. The $360 million loan was made at 60 percent loan-to-cost.

“Speed of execution was critical here. There was a very short fuse to close as it’s something of a transitional asset,” one source told CO. The acquisition financing drew competition from a variety of capital sources—including a mix of U.S. and foreign banks as well as debt funds—with Blackstone winning the deal.

CBRE and Eastdil Secured co-arranged the acquisition financing and also co-marketed the property for sale earlier this year. James Millon and Tom Traynor led the CBRE Capital Markets team in the acquisition financing while Darcy Stacom and Bill Shanahan brokered the sale. Officials at CBRE and Eastdil did not immediately return a request for comment.

In November, The Real Deal reported that Los Angeles-based CIM had entered into contract to buy the Midtown office property, located between West 40th and West 41st Streets, for $520 million.

New York REIT, which has been shedding assets as part of its liquidation plan, announced that it closed on the sale of the building yesterday, and that the $305 million mortgage on the property was “fully satisfied at closing.” After satisfaction of this debt, pro-rations and closing costs, the REIT received net proceeds of approximately $193 million.

In September, CO first reported that RXR Realty and SL Green Realty Corp. would purchase a 49 percent stake in New York REIT’s $1.7 billion One Worldwide Plaza and that Goldman Sachs would lead the $1.2 billion refinance of the property’s debtwhich occurred concurrently with the sale closing.

The REIT also announced yesterday that it has entered into three separate contracts to sell its properties located at 306 East 61st  Street, One Jackson Square and 350 West 42nd Street for an aggregate amount of $103.1 million. The closings are expected to occur in early 2018.

It’s been a busy December for Blackstone. As first reported by the New York Post, Blackstone Group, via its core-plus fund, entered into a contract earlier this month to buy a 49 percent stake in One Liberty Plaza from Brookfield Property Partners, in a transaction valuing the property at $1.55 billion.

Traynor and Millon have been off to the races since they joined CBRE Capital Markets from Deutsche Bank last year. In November, the duo arranged a $800 million loan from Deutsche Bank and HSBC to refinance Fosun International’s 28 Liberty Street in the Financial District, and they also closed a $1.75 billion loan for HNA’s purchase of 245 Park Avenue in May, as well as a $1.1 billion loan for Stonemont Financial Group’s $1.3 billion acquisition of 100 triple net lease properties in August.

Officials at Blackstone could not immediately be reached for comment. A spokesman for CIM did not immediately return a request for comment.

Source: commercial

Why More Real Estate Companies Are Getting Into the Tech Game

Over the weekend of Oct. 13 through Oct. 15, the Real Estate Board of New York hosted its inaugural hackathon, which brought teams from 40 different organizations together to compete for who could develop the best app to address real estate problems.

Prescriptive Data, a one-year-old software company, came away with two wins at the event’s sustainable maintenance and operations, and location intelligence categories.

It should be noted Prescriptive Data had a serious leg up. It was spun off from a division of institutional landlord and developer Rudin Management Company to sell its software Nantum, which gathers building data, such as occupancy, electricity usage and other factors, to help maintain optimal indoor temperatures and efficient energy use.

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A screen shot of the Nantum platform. Photo: Prescriptive Data

This is one of the open secrets of real estate and tech: Despite all the hand-wringing about how real estate is populated by dinosaurs who only understand brick and mortar, there are plenty of landlords worried about just how far behind the industry is and have been actively trying to fix the problem. Landlords are investing venture capital directly into new companies, creating venture capital arms or funding venture capital firms that invest in real estate tech, and making their own in-house technology.

The initial version of Nantum, Prescriptive Data’s first product, was created in 2013, and Rudin tested it with its buildings. 

“We wanted to improve our business, and once we developed Nantum and we saw how powerful the system was in our properties, we thought, ‘Wait a minute, we may be onto something here,’ ” Michael Rudin, a vice president at the company, told Commercial Observer.

Rudin started Prescriptive Data last summer and began selling Nantum on the market to landlords. At that time, it was using the product in 17 Rudin buildings encompassing 10 million square feet, according to a release. The company now has more than 12 million square feet of properties on its platform, according to a spokeswoman. (Rudin declined to say if Prescriptive Data was profitable yet.)

And through Rudin Ventures, Rudin has invested in a series of technology companies, including Hightower (since merged with VTS) in 2015, Radiator Labs in 2016, Honest Buildings and Latch in 2016 and Enertiv in 2017.  

But Rudin is hardly the only real estate company to invest in related technology; Blackstone, which has its own tech division with Blackstone Innovations, has invested capital in various startups, including property management platform VTS in January 2015 with $3.3 million.

Today, Blackstone executives, along with Rudin, Equity Office and other large real estate players that use VTS’ technology, make up the company’s customer advisory board. They meet as a group once a quarter to talk about things they like about the product and ways to improve it—on a voluntary basis.   

“They are seeing the value that they are getting for the product, and if they can get a stake in it, it is a pretty great thing for them,” VTS co-Founder and Chief Executive Officer Nick Romito said. “It’s better to be in the car than watch the car pass you.”

Brookfield Property Partners, Rudin and Milstein family’s Circle Ventures have invested in Honest Buildings, a project management platform that helps ensure developments are completed on time and on budget. And mall operator Simon Property Group, via Simon Ventures, has invested in Appear Here, a marketplace for short-term retail space (with terms from one day to as long as three years).

Appear Here recently raised funding from Fifth Wall, a venture capital firm that supports emerging real estate-related technology companies. Fifth Wall injected the undisclosed amount into the company to support its expansion in the United States, according to a release on the partnership. This is significant because Fifth Wall has investments from major real estate landlords such as Equity Residential, Hines, Macerich and real estate investment trust Prologis, and Appear Here needs landlords for its model to work.

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Appear Here’s software. Photo: Appear Here

“At our end, we are really trying to disrupt an old industry,” said Elizabeth Layne, Appear Here’s chief marketing officer and U.S. general manager. “But in order for that to be successful, we need landlords to put their space online. We need them to use our dashboard. And that’s a big change for an industry that is just used to using brokers and talking to a person instead of using the internet.”

Fifth Wall, meanwhile, has raised $232.3 million to date and has already invested in many successful tech companies that are seeking to enhance real estate-related services, including OpenDoor, which lets people instantly buy and sell homes, and States Title, which is seeking to revamp the title and underwriting process. Fifth Wall’s success via those startups has raised eyebrows among real estate executives looking to make their foray into the world of tech.

“We launched a corporate venture group in March 2016. The idea started when our CEO had conversations with Fifth Wall,” said Will O’Donell, a managing director at Prologis, during the inaugural MIPIM ProTech event in Times Square on Oct. 11. “The reality of why we started it is everyone at the company has a day job…but if you actually create a group that is 100 percent accountable for identifying where disruptive trends are occurring—where technology is coming out—and forcing the company to deal with it, it’s a very creative and helpful friction.”

The MIPIM event brought out more than 800 professionals—most of whom were new startup founders and marketers—but there was a sizable group of real estate executives from institutional developers and landlords, including Blackstone, AvalonBay, Vornado Realty Trust, Silverstein Properties, Equity Office and Japan’s Mitsui Fudosan. Ric Clark, a senior managing partner and chairman of Brookfield Property Partners, and Owen Thomas, the CEO of Boston Properties, were panelists at one of the forums.

The showing revealed just how hungry landlords are for tech. Many used the time to network with young entrepreneurs and discuss new technologies.

“We ran a very large [request for proposals] back in the spring looking for a technology vendor that we could essentially partner with to handle everything from lease management, lease pipeline, tenant tracking all the way through to the asset management and the accounting,” said Jonathan Pearce, a senior vice president at Ivanhoé Cambridge, during the panel discussion. “And we had very smart people around the table, and believe it or not, there isn’t just one solution that does all of that.”

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A panel at the MIPIM ProTech event about new ventures by real estate companies, which was moderated by VTS co-Founder Brandon Weber. Photo: Reed Midem

When the moderator Ryan Simonetti, a co-founder of online meeting-space provider Convene, suggested a company at the event might have a product that Ivanhoé was looking for, Pearce replied, “I’d love to talk to them.”

“What is happening is as companies have been successful in developing technology, large real estate companies are embracing them, and they see an ability to prosper both on the innovation side and the management side,” said Robert Courteau, CEO of Altus Group, an advisory services and software provider for real estate companies. “By investing in these [startups], it has immediate benefits on their own companies and perhaps make some money in the market. They are being opportunistic.”

Landlords are also ramping up the use of tech in their properties. Cove Property Group and partner Bentall Kennedy are wrapping up construction at 101 Greenwich Street, where they have partnered with Convene.

Convene, which Brookfield has invested in numerous times, will debut a mobile app for 101 Greenwich that will allow employee access through security turnstiles. The app will also allow tenants to give mobile building access to visitors, book Convene conference rooms and order the delivery of food to their space from Convene’s kitchen. In addition to this, Cove is adding facial recognition technology to the building to be used by employees to access their place of employment.

“We look for technology to increase the tenant experience in the building and things that are going to make us run the building more efficiently,” said Amit Patel, the chief operating officer of Cove. “If you are rushing into the building into the morning and you have something to do like a meeting, you want to be able to get into the building as quickly as possible. And it will alleviate pressure off the security staff.”

Last year, developer Savanna employed Cortex Index, which provides building engineers with an app that helps them operate complex HVAC systems more efficiently, at 110 William Street. This helped the developer reduce annual operating costs by $250,000, according to a Savanna release. Now the developer is looking for further tech opportunities.

“As we have done with Cortex and other technology platforms, we will continue to selectively implement technologies that fit within our portfolio and also help drive operational efficiencies and savings, ultimately creating value for our investors,” Nicholas Bienstock, a co-founder and co-managing partner of Savanna, said in a statement to CO. “I think we are now starting to see technologies that generate real payback on the initial investment required to implement them, in addition to providing certain operational efficiencies or data analytics.”

And then there’s the startup Outernets, which transforms vacant storefronts (or any window, for that matter) into interactive digital displays or advertisements. Omer Golan, who co-founded the company two years ago with his wife Tal, said that they have secured a few major landlord investors who are “very much involved,” but he would not reveal the names.

United American Land is working with Outernets, as is office-space provider and soon-to-be landlord WeWork (once considered a startup itself) at its headquarters in Chelsea. The company installs a special material on the glass and a projector system inside that creates the graphics onto the window. Outernets shares the ad revenue with landlords. And the technology also has sensors that pick up demographic data about the people passing by, which they also share with landlords.

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Outernets’ technology on a window at Dylan’s Candy Bar in Union Square. Photo: Kaitlyn Flannagan

These technologies are just the beginning as landlords increasingly see their value, Courteau said.

“You’ll see more capital going into [startups] as larger asset owners invest in technologies,” Courteau said. “There is still a lot more capital coming in.”

The next generation of real estate players may be a hybrid of landlord-tech developers.

Columbia University’s Graduate School of Architecture, Planning and Preservation began offering courses in real estate technology in June, called Hacking for Real Estate 1 and 2, to teach the next generation of developers about the importance of property technology applications.

There students learn how to use a variety of real estate applications and how to think critically about incorporating technology in their projects. The one-year master of science degree in real estate will be useful as technology begins to play a much bigger role in development, according to Patrice Derrington, the director of the program.

“We are teaching our students how to be digitally literate,” Derrington said. “That means capable of all apps, understanding the place for applications, being critical in terms of the usage of applications and having a more incisive look at daily real estate activities and considering potential digital solutions. They even do a little bit of coding to know just what it is like.”

To date, real estate companies have been targeting real estate-related ventures, hardly straying from things that would support their core business. But then there is amazing story of SilverTech Ventures, which works in collaboration with Silverstein Properties (as it was in part founded by Silverstein President Tal Kerret). SilverTech Ventures has been investing in both real estate and non-real estate startups for more than two years.

Kerret and other founders meet with about around 50 to 60 companies each month and choose one startup in which to invest every two months. To date, they have invested in 17 startups, including mobile wallet Cinch, identity protection startup Semperis and property management service Rentigo. Kerret said before the selection they like to spend a few months getting to know the executives.

“The graph is always up and the revenue will always come in the future,” Kerret said. “From the hundreds and hundreds of companies that we have seen it’s always [the same]. It’s like going on a date before you begin seeing someone.”

But for Kerret, investing in young companies provides them with something other than just the next business opportunity or way to enhance their own portfolios.

“I want to have fun with what I do in life, and I want to be around people I enjoy,” Kerret said. “I spend a lot of time with the CEOs, and I would rather spend time with people that I can have more fun with.”

Source: commercial

Wealth Management Firm for Blackstone Co-Founder Moves Within Midtown

Peterson Management, which manages the family assets of Peter Peterson, Blackstone Group co-founder and former Lehman Brothers chief executive officer, is heading to the former Citigroup headquarters on Park Avenue.

The firm will relocate from 26,000 square feet at Paramount Group’s 712 Fifth Avenue to 40,000 square feet of offices at Boston Properties399 Park Avenue, The Real Deal reported. The outfit led by Peterson’s son, Michael Peterson, will set up shop in a penthouse-like space that includes outdoor terraces and a glass box constructed on top of the building’s setback. Rents in the 15-year lease start at $130 a square foot and rise to $150 a square foot towards the end of the term, according to TRD.

Seth Hecht of Cushman & Wakefield and Joseph Conwell of Philadelphia-based GPX Realty Partners represented Peterson. (GPX Realty is a subsidiary of private investment firm GPX Enterprises, another company headed by Michael Peterson.) It wasn’t immediately clear who represented the landlord.

A spokesman for C&W declined to comment, and Boston Properties’ spokeswoman didn’t respond to a request for comment.

The wealth management company will relocate along with the nonprofit Peterson Foundation, which Peter Peterson launched in 2008 to focus on fiscal sustainability and national debt.

Source: commercial

Data Provider Inks 14K-SF Deal to Relocate HQ Within Midtown

Data and trading technology provider Thesys Technologies has signed a 13,787-square-foot lease at Equity Office’s 1740 Broadway for its headquarters, the landlord announced today.

The financial technology company will occupy a portion of the 14th floor of the 26-story building between West 55th and West 56th Streets in Midtown. The asking rent in the seven-year lease was in the high $70s per square foot, according to a source with knowledge of the deal.

“The cutting-edge, stylish design of our prebuilt spaces at 1740 Broadway proved to be the perfect fit for an innovative fintech company and industry leader like Thesys Technologies,” Zachary Freeman of Equity Office, which is a subsidiary of Blackstone Group, said in a prepared statement.

Thesys expects to move in November from its current address nearby at The Moinian Group’s 3 Columbus Circle, a full-block building that runs on Eighth Avenue and Broadway between West 57th and West 58th Streets.

Thesys, founded in 2009 in New York City, also has offices in South Carolina. Its new pre-built digs at 1740 Broadway will feature concrete floors, exposed ceilings, high-end finishes and an open pantry, the landlord said in a press release.

“These are exciting and dynamic times for our organization,” Mike Beller, the chief executive officer of Thesys Technologies, said in a prepared remarks. “The move to a new corporate headquarters reflects the hard work and commitment of our employees, who have all contributed to our rapid growth.”

Brad Gerla and Brad Auerbach of CBRE handled the deal for Thesys Technologies. Freeman and Scott Silverstein of Equity Office represented the landlord in-house alongside a CBRE team of Howard Fiddle, Zak Snider, Arkady Smolyansky, Alexander Golod and Ben Joseph.

“After a thorough analysis of our client’s technical requirements, their projected growth and employee and client commuting patterns, we felt that the space at 1740 Broadway was a perfect fit,” Gerla said via a spokesman.

The building at 1740 Broadway was erected in 1950, and Equity Office purchased it in 2014 for approximately $600 million from Vornado Realty Trust. Existing tenants at the 620,000-square-foot building include fashion retailer L Brands and law firm Davis & Gilbert.

The Real Deal was first to report the news about Thesys’ new digs.

Source: commercial

The Plan: For Blackstone Innovations, Comfort Breeds Creativity at 601 Lex

When the Blackstone Group was preparing to relocate its Innovations & Infrastructure team to a new 37,000-square-foot space on the 22nd floor of 601 Lexington Avenue in Midtown, it knew that the technology division would require a different kind of work environment than typically used by the private equity giant.

That would mean an office that would have the Innovations team’s New York-based staff of roughly 150 tech developers and designers “in the right frame of mind,” according to Bill Murphy, Blackstone’s chief technology officer and head of the Innovations division, who took Commercial Observer on a walkthrough of the space in July. “I think comfort breeds creativity.”

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Blackstone Innovations’ new office at 601 Lexington Avenue in Midtown. Photo: Eric Laignel

So Murphy surveyed his staff to find out how he could make their surroundings more comfortable (they already have a laxer dress code than their fellow Blackstoners). What he discovered was a desire for an aesthetically pleasing, multifunctional environment—and that’s exactly what Blackstone, with the help of architects M Moser Associates, delivered at 601 Lex.

The office, which the Innovations team moved into in March after a 10-month buildout process, is anchored by a large common area featuring a kitchen area as well as tables and booths for meetings and work sessions. A large wall equipped with video monitors enables Murphy and his team to hold conferences with its satellite offices around the world, while an adjoining conference room is separated from the common area by an impressive, garage-style door that opens into the main space—enabling Blackstone employees to reconfigure the room as they see fit, whether it’s using the conference room for a private meeting or opening it up into the common area for an all-hands session.

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Blackstone Innovations’ new office at 601 Lexington Avenue in Midtown. Photo: Eric Laignel

“Bill had a vision of creating a space that was unique and not the standard Blackstone criteria, as far as building out spaces,” Charlton Hutton, a senior associate at M Moser and one of the lead designers of the space, told CO. While Blackstone wanted a space that would work to its advantage in recruiting and retaining talent, “they didn’t want to look like a startup—they are a very sophisticated and mature company,” Hutton said. He described the office’s design, which couples hardwood floors and wood-paneled walls with a refined, corporate feel, as a “hybrid approach between a tech firm and a financial firm.”

Murphy noted that while open office layouts are all the rage these days, his employees wanted more intimate surroundings where they could focus on the task at hand. So while the Innovations team mostly occupies workstations that can be converted between seated and standing desks, conference rooms (named after history’s great innovators—George Washington Carver, Alexander Bell and Archimedes) are scattered throughout for a private setting.

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Blackstone Innovations’ new office at 601 Lexington Avenue in Midtown. Photo: Eric Laignel

In one of the coolest quirks of the space, some of those rooms feature treadmills enabling workers to stretch ther legs while they work (Murphy likes to hop on the treadmills—which have a max speed of 4 miles per hour—while reading through reports). And, in yet another testament to the space’s prioritization of employee wellbeing, most of the office’s conference rooms and private offices occupy the middle of the floorplan—meaning the bullpen areas, housing most of the Innovations team’s desks, occupy the edges of the floorplan and get to enjoy the natural light that floods in through the office’s large windows.

“It speaks to this wellness concept in design,” Hutton said of the space’s configuration and features. “There’s a lot of talk about being sustainable in building, but let’s also focus on people—your staff’s physical and mental wellbeing. That treadmill may be where you get your best ideas.”

Source: commercial

Euro Trip: Why U.S. Investment Firms Are High on Europe’s Non-Performing Loans

Over the past several years, as the U.S. financial sector has gradually revved back into gear and put the economic peril of the late 2000s firmly in the rearview, Europe has found matters more complicated. The legacy of the credit crunch still hangs over the continent with the economies of some nations, like Spain and Ireland, continuing on the long path to recovery while others, like Greece, still find themselves in dire straits.

It is a dynamic evident on the balance sheets of banks and lenders across Europe. More than 1 trillion euros ($1.19 trillion) in non-performing loans, or NPLs—borrowed predominantly against real estate assets that slipped into default (or near default) after the credit crunch—remain on the books across the Eurozone.

The European banking sector has shown signs of improvement; the NPL ratio (the percentage of NPLs compared to total loan volume) dropped to just above 5 percent at the end of 2016, according to the European Banking Authority, down from a 2013 peak of around 8 percent. But observers have continued to express concerns about the scale of what Vitor Constancio, the vice president of the European Central Bank, has termed “the NPL problem.”

“NPLs are bad news for banks,” accounting giant KPMG said in a May report on the European NPL sector. “They consume capital; they require management time and attention that diverts attention from the bank’s core activities; they increase the running costs of the bank; they decrease profitability; and they may even undermine the viability and sustainability of the bank.”

In July, the Council of the European Union unveiled a series of measures designed to alleviate the continent’s NPL burden. Those measures would include heightened bank supervision, the reform of insolvency and debt recovery frameworks, and even a “restructuring of the banking industry.” The Council also called for the “development of secondary markets for NPLs,” which would consist of “the setting up of NPL transaction platforms” that would stimulate the trading of these distressed loans.

The latter measure is particularly interesting, given how global private equity firms have shown increased appetite for European NPLs in recent years and have invested hundreds of billions of dollars in the sector. Indeed, when it comes to lifting the continent’s banking industry and alleviating the strain that NPLs have placed on Europe’s economies, investment from private equity players—including U.S.-based giants like Blackstone Group, Apollo Global Management and Bain Capital—may be the European banking industry’s best hope.

More than 103 billion euros ($122 billion) in deals for European NPLs were completed in 2016, which was roughly on par with the previous year and up from just under 83 billion euros in 2014, according to a recent report by Deloitte. While transaction volume only reached 42 billion euros ($50 billion) through the first half of 2017, Deloitte said it anticipates a busy second half of the year for the sector—with more than 86 billion euros ($102 billion) in NPL deals in the pipeline, which would set a single-year record.

“The bulk of the money is coming from the U.S. private equity sector,” said Richard Dakin, the managing director of CBRE’s Capital Advisors division in the EMEA region. Dakin cited CBRE research estimating nearly 67 billion euros ($79.6 billion) in capital currently available to be deployed by loan purchasers looking to invest in Europe, with 92 percent of that dry powder coming from U.S.-based investors—the majority of them in the private equity sector.

While the United Kingdom and Ireland initially led the way in the years following the Great Recession, Italy and Spain are now the most active markets for European NPLs with 9.3 billion euros ($11 billion) and 4.7 billion euros ($5.6 billion) in transactions, respectively, through the first half of this year. Spain has shown particular appeal to investors buoyed by the nation’s ongoing economic recovery and falling unemployment rate; in July, Bain acquired a loan portfolio from Banco Ibercaja holding a par value of 489 million euros ($582 million) and comprising loans backed by “mostly residential development land” and other real estate assets, the private equity firm said at the time.

“We continue to believe Spain is one of the most attractive NPL and real estate markets in Europe,” Fabio Longo, a Bain managing director and head of the firm’s European NPL and real estate business, said in a statement announcing the deal. “This portfolio, with its sizable exposure to land plots in Spain’s largest cities, is a great opportunity to continue expanding our footprint in its residential development sector.”

The Banco Ibercaja deal was Bain’s ninth NPL transaction in Spain since 2014, but the company has also increased its exposure in other markets around the continent—making its first NPL forays into Italy and Portugal just this year.

European Central Bank Headquarters Frankfurt
Frankfurt, Germany’s skyline as viewed from the top of the new European Central Bank headquarters building. Photo: Ralph Orlowski/Getty Images

Blackstone, meanwhile, has been a high-profile player in the European NPL market since its 2014 acquisition of a residential mortgage portfolio from Barcelona-based bank CatalunyaCaixa (now part of BBVA). That deal saw the investment firm’s Jonathan Gray-led real estate arm pay 3.6 billion euros for a portfolio holding a par value of nearly twice that amount—a value proposition indicative of the appeal of NPLs to investors like Lone Star Funds, Oaktree Capital Management and Cerberus Capital Management, all of which were reportedly in the bidding for the CatalunyaCaixa portfolio.

“There is more competition to acquire these loans, and the pricing has become more competitive,” said Dakin. “If the general economy is improving, then hopefully real estate values are improving, and the ability to make a higher return becomes more attractive.”

This summer, Blackstone made an even bigger move in the Spanish real estate financing market, paying roughly 5 billion euros ($5.9 billion) for a 51 percent stake in the struggling Banco Popular’s commercial real estate portfolio. The deal, which came on the back of Banco Santander’s June acquisition of Popular, placed a 10 billion euros ($11.9 billion) valuation on a portfolio of real estate loans and properties holding an aggregate book value of 30 billion euros ($35.7 billion)—yet another testament of the value to be found in the European real estate financing sector.

“The investment thesis is that Spain is growing very strongly, and if you can buy something at a substantial discount to face value, [that value] can be reached in a reasonable period of time,” according to one managing director at a major private equity firm with exposure in the European NPL market, who did not want to be named.

Italy also continues to attract a lot of activity, leading the European market in terms of NPL transaction activity despite a less bullish outlook on its economy. Italy’s NPL ratio stood at just above 15 percent at the end of last year, according to statistics from the European Parliament—down from the 20 percent threshold it has hovered around in recent years but still well above the continental average.

Despite concerns about the Italian economy’s fundamentals, private equity players continue to make major deals in the country’s NPL market. In July, U.S. investment firms Fortress Investment Group and PIMCO closed on a massive 17.7 billion euro ($21 billion) acquisition of NPLs from Italian bank UniCredit—among the largest deals seen in Europe this cycle. As for other EU member countries with heavier NPL ratios and dimmer near-term economic prospects, such as Greece, investors have been altogether less willing to take the leap into such debt markets.

Nor does it appear likely that major investment banks and institutional investors will delve too far into a market that has predominantly been the domain of private equity heavy-hitters. While recent reports have suggested that the likes of Citi and Morgan Stanley are eyeing NPL opportunities in Europe, it’s more likely investment banks would look to increase their lending against such portfolio acquisitions as a means of indirectly upping their exposure to the market, rather than looking to acquire such precarious assets themselves.

“I think regulators get nervous about [banks] taking trading positions,” said the managing director who did not want to be named. “[Private equity firms] are looking for a five-year turnaround on the investments we make; we don’t buy things because we want to be bigger…If I was a NPL seller, I would call Lone Star or Apollo before J.P. Morgan or Goldman Sachs.”

Dakin said the private equity players who are driving the market for European NPLs are being encouraged by the regulatory push to address the continent’s distressed loan problem.

“The momentum from the European Central Bank has been positive,” he said. “There is a push from a regulatory perspective to increase the volume of NPL sales because it improves the banking system and normalizes the economy.”

NPL transaction volume “should remain strong over the next few years if European economies continue to improve,” Dakin added, before eventually “turning off” as the current deleveraging cycle runs its course.

European banks and regulators would hope that, by then, the continent’s economy will be on altogether more stable footing.

Source: commercial

Michaels, Blink Fitness Combine to Sign 40K SF at New BK Development

Source: commercial