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Northwood in the Running to Acquire HNA’s 245 Park Avenue

A number of firms, including Northwood Investors, are in the running to acquire HNA Group’s 245 Park Avenue, several sources with knowledge of the situation told Commercial Observer.

One Chinese bank official who spoke to CO said that while there are many potential suitors for 245 Park, it’s unclear whether HNA is willing to accept a price at the current market value—which many expect will be significantly below that which the conglomerate paid for it in 2017.

HNA purchased the 1.8-million-square-foot office tower at 245 Park Avenue for a whopping $2.2 billion from Brookfield Property Partners in May 2017 and is now on the verge of unloading the asset less than a year later.

This deal would come on the heels of Northwood scooping up HNA’s 386,921-square-foot 1180 Avenue of the Americas for $305 million on Feb. 15, financing the bulk of the transaction with a $237 million loan from the Royal Bank of Canada. HNA acquired the property in 2011 for $259 million from the Carlyle Group, according to property records.

In June 2017, HNA, the former airline-turned-conglomerate, was one of four major Chinese investment arms identified by the Chinese government to have borrowed too aggressively for offshore transactions. A month later, Chinese President Xi Jinping and China’s State Council levied restrictions on any future investment in overseas real estate and ordered those conglomerates to begin liquidating some of the major real estate assets they acquired.

An executive of a prominent New York-based landlord previously told CO that “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.” The movement of 245 Park may be the start of that discovery.

Officials at Northwood were not immediately available for comment.

With additional reporting provided by Cathy Cunningham.

Source: commercial

‘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

How Steven Levy Reinvented Kamber Management’s Decades-Old Real Estate Legacy

Kamber Management is a 77-year-old company that, with a Manhattan collection of four properties, sought a larger play.

So Steven Levy, the president and CEO of the Manhattan-based, third-generation family firm, acquired Tower 45, a 40-story, 458,000-square-foot office building at 120 West 45th Street, for $365 million from SL Green Realty Trust in September 2015. The building is currently in the midst of a years-long redesign that will make it the jewel in the Kamber crown.

At the time, Kamber held a 95-year leasehold on the 1.1-million-square-foot 1407 Broadway that the firm’s founder, Abraham Kamber (Levy’s grandfather) had originally acquired from developer William Zeckendorf. As the leasehold passed its 65-year mark, Levy felt the time frame had become too short to maintain its value and sought to sell the asset, hoping to instead find a property that would allow the company to hold a fee position.

“At some point [in the leasehold], the owner has less incentive to invest capital, and tenants find the lease term too short for their sense of stability,” Levy said. “Once you’re below 25 years, you can’t borrow money on it. If there’s a big capital investment to be made, you’re kind of scratching your head, thinking, do I really want to do this.”

Kamber sold the leasehold to Shorenstein Realty Services for $330 million in 2015 and used the proceeds to help finance the acquisition of Tower 45. (Also helping: the company’s September 2015 sale of 18 and 20 West 33rd Street to a partnership of the Carlyle Group and 60 Guilders for $111 million.)

Once the purchase was done, Kamber had its work cut out for it, as the building needed significant renovations, which Levy put in the $10 million range. The building’s atrium and lobby are being completely redesigned by the architectural firm Pei Cobb Freed & Partners, and all of the building’s mechanicals are being updated with several innovative systems being installed. These include destination dispatch, a system that routes passengers into the building’s elevators more efficiently, and an atmosphere air filtration system that gives the building some of the cleanest indoor air in New York.

“Destination dispatch is the new computer algorithm you find in new buildings,” he said. “It makes elevator usage much more efficient and quicker for the passenger. The elevators won’t be completed until the end of 2018, but we’ll be turning that on at the beginning of the year.”

As for the air filtration system, Kamber was the first developer in New York to install it, giving Tower 45 arguably the cleanest air in New York. This designation only lasted several weeks, though, as over 10 other buildings have installed the system since.

“It scrubs the air in the building according to three measurements—small particulate, large particulate and one for anything you can smell,” Levy said. “Small particulate tends to be bacteria or viruses—organic matter. Large particles tend to be dust and dirt. The filtration system cuts down the presence of those three by about 50 percent.”

Every floor of the building has sensors to measure air quality, which Levy can monitor in real time on a smartphone app. He said the system has been found to save $2,300 a year per employee in terms of sick days avoided and increased productivity.

With floor plates between 10,000 and 13,000 square feet, Levy sees Tower 45 as filling an essential niche in the New York office market.

“We are a small boutique building,” he said. “If tenants like the neighborhood and aren’t large enough to command the presence of a full floor in [larger buildings on Avenue of the Americas], they can be in a state-of-the-art, beautiful building with tenant amenities and a location that can’t be beat. We think we distinguish ourselves on that level.”

Richard Baxter, a vice chairman of New York capital markets and investment sales for Colliers, represented SL Green in the Tower 45 sale while still at JLL and has known Levy for 20 years.

“Steve’s decisive. When he wants to acquire something, he goes for it very aggressively,” Baxter said. “The Tower 45 deal was a very competitive transaction. There was competitive bidding to buy the building, and he was able to pre-empt the bid process. He’s a gentleman and a man of his word, and when he says he’s going to do something, he does it. You could do business with him on a handshake.”

The publicity around Tower 45 since the purchase has brought increased and much-desired attention to Kamber and Levy, who said he’s being brought more deals to consider as a result. While Levy is a broker, he’s spent most of his time in real estate as more of a steward of the family office, handling Kamber’s investments.

Levy, 62, grew up on the Upper East Side. His grandfather, Abraham Kamber, founded the company that bears his name in 1940, but Levy said that he and his grandfather never discussed business. Rather, his father Stanley, an attorney who didn’t work in the business, told him all about it instead.

Levy attended Connecticut College in New London, Conn., where he was allowed to design his own major, and graduated in 1977 with a bachelor’s in the American founding and the enlightenment. He scored his first job in real estate as a leasing broker at Julien J. Studley (now Savills Studley). 

“It was highly unusual then to be able to design your own interdisciplinary major. I’m still an amateur historian,” he said.

“A couple of years into working at Julian Studley, I went out to lunch with my boss, Mike Soloman. He said, ‘Steve, do you know why we hired you?’ I said, ‘Actually, Mike, I have no idea.’ He said, ‘Because you had that crazy major on your résumé. I figured if you could be that creative, you might be able to do something.’”

Levy, who said that seeking a job in real estate after graduation was more of a natural inclination, given his grandfather’s position, than a marked decision about his future, didn’t find success as a leasing broker, finding a more natural fit in sales.

He later worked at Wm. A. White & Sons, managing the firm’s Manhattan properties, and realized that his future would include a broader range of duties than simply sales. As he was looking over some of his company’s proposed sales, he inadvertently caught the development bug.

“We had these incredible deals for sale,” he said. “I went to my boss, and I said, ‘You know, let’s not sell this one, [referring to a building at 40 Worth Street]. Let’s raise some money and buy it.’ He looked at me and said, ‘Steve, we don’t do that here. We’re brokers.’ So I realized I was not long for that office. I realized the point was to own.”

Kamber, meanwhile, had been somewhat dormant at the time. While the middle of the 20th century found the firm owning a slew of prestigious properties throughout Manhattan, including One and Two Park Avenue, the Astor and Manhattan Hotels, and the Hearst Building, many of these were sold in the upmarket of the mid-1960s. By the time the elder Kamber died in 1977, the company, while still a fee-collecting entity with assets of its own, had basically stopped any new deal activity.

After the stint at White & Sons, Levy joined Kamber in 1986. (His brother, Peter, joined the firm three years later and remains today as a principal in charge of the daily operations of Kamber’s properties.)

His father had much of the paperwork related to the family business, and Levy poured through the documents, learning all he could. 

“I studied everything and thought, ‘This can’t be that difficult. How do you improve the building’s operations? How do you make it more attractive to tenants?’ ” he said.

Levy said Kamber’s status as a family firm made his duties a bit different than the head of your average real estate firm. While still a broker and actively seeking deals, Levy described his top priority as managing the “family office,” by which he means serving as the steward of the family’s many long-standing investments.

“We have an investment imperative,” he said. “We have everything organized into different types of investments. So I’m not just in real estate. I run a ‘family office’ now. That’s a term that refers to the disparate interests of families that have holdings of various kinds. Real estate is most of what we do but not all. We also have alternative investments. We do quite a bit with energy, rail cars, all kinds of things.”

At first, Levy built the company back to the point where it could manage family properties that had been run by outside firms. This included writing all the operational software for the company, which would remain in use for almost the next two decades. He also sold off shopping centers the company owned around the country, because, he said, “I wasn’t crazy about the asset class.”

For much of his time since then as Kamber’s president, his priority has been increasing the desirability of his family-owned properties and determining the best ways to maximize asset value. Selling off an expiring leasehold, as he did at 1407 Broadway, is one example of this. Another was his handling of a Section 8 housing project the family owned in Groton, Conn., the 446-unit Branford Manor Apartments. While the property had become “tremendously valuable,” Levy said, its effective management over the long run was beyond the company’s expertise, and Levy sold it.

He perceived a better opportunity in the purchase last month of three parking garage condominiums at 80, 100-120 and 220-240 Riverside Boulevard in Manhattan. Kamber purchased the properties, which total 916 parking spots over 248,000 square feet that Levy believes will be “a great long-term asset,” from the U.S. arm of a foreign-based for $50 million. He’s also continuing to manage a 16-story, 143,000-square-foot office building Kamber owns at 15 West 37th Street, a job that includes installing new dual burning boilers and the destination dispatch elevator system.

For later in 2018, Levy aims to see Kamber add another building—as yet undecided—to its portfolio.

“We prefer office, but we’ll look at anything,” he said. “One idea is more of an industrial logistics kind of use somewhere in the metropolitan area, and we’ll be looking to place about $55 million at that time.”

In addition to working on maintaining the business, Kamber, who lives in Greenwich, Conn., with his wife of 33 years, Leora, Levy is a third-generation contributor to the United Jewish Appeal/Federation of Jewish Philanthropies. The couple has three sons, twins David and Michael, 28, and Benjamin, 24.

“The UJA was started around 1938 to rescue Jews in Europe,” Levy said. “The federation is just finishing its 100th anniversary year, and they merged in 1986. Grandpa had always been very involved with that and other institutions, and we continue to contribute a major gift there. Now my boys will be fourth generation, as they’re getting involved in UJA.”

For all the different aspects of his responsibilities at Kamber, Levy said he still sees himself as a broker first and foremost and believes this grounding has played a large part in driving his success—and now, Kamber’s— and will continue to do so in the years ahead.

“I would argue the basis of my success in my business has been my brokerage training, the focus on closing a deal,” he said. “That training has focused me on mastering everything that needs to be done, not relying on others to get a deal closed, following up, and dealing with people in a way that keeps them engaged.”


Source: commercial