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Category ArchiveTime Equities

How a Rivalry Between VTS’ Romito and Hightower’s Weber Turned Into a Bromance

It was over a beer in the summer of 2016 that Nick Romito and Brandon Weber knew that they were meant to be together.

From there, the pair did a series of double dates—a brunch and two dinners—with their respective partners, and those meetings were just as positive.

It shouldn’t have worked: Romito and Weber had a rivalry going as strong as that of Coke and Pepsi, or the Red Sox and Yankees, or DC and Marvel.

Romito had founded VTS (formerly called View the Space), a leasing and asset management platform, in 2012. Weber’s Hightower came on the scene a year later doing a lot of the same stuff. But whatever bad feelings they might have had evaporated.

“We’re all like, ‘This is unbelievable how similar we all are,’ but even where we’re different, those are actually filling gaps that both companies have, so it was a super synergistic thing,” Romito said during an interview along with Weber at their offices last week. “We got along, the visions lined up, and we just said, ‘Alright, this is something worth further pursuing.’ ”

So Romito and Weber merged their commercial leasing and asset management platform startups in a $300 million all-stock deal on Nov. 29, 2016.

They retained Romito’s company’s name, VTS, and its New York City offices at 114 West 41st Street. Romito kept his CEO title and Weber, the CEO of Hightower, became VTS’ chief product officer.

In the year since, the bromance has bloomed with Romito and Weber singing each other’s praises—a far cry from the premerger days when they were trying to one-up each other to win business.

As a combined commercial real estate tech platform, VTS has expanded its reach with more than 180 new clients last year (three quarters of which are landlords and one quarter of which is brokerages). The number of customers jumped by 87 percent to 28,000 in 28 countries, and VTS saw a 112 percent increase to 7 billion square feet (in over 49,000 buildings) in office, retail and industrial space managed on the platform. Office properties comprise 50 percent of the platform—retail makes up about 10 percent, and industrial constitutes the rest, according to Weber.

“We’re averaging almost 300 million square feet a month,” Weber said. “The entire New York office market is 450 million square feet, so on a monthly basis, we’re adding two-thirds of the entire Manhattan office market. It’s been great. We’re now really hitting this tipping point where I think the broader industry kind of recognizes and buys into our vision.”

While the 200-person VTS has managed to grow in the year since the merger, the executives committed a lot of time to the integration of two very different work environments.

“[VTS had] a really, really strong sales organization [and] a strong methodology,” Weber said. “I think Hightower brought more seniority around the technology side.”

Zach Aarons, a co-founder and partner at real estate tech accelerator MetaProp NYC, said Romito and Weber “were dogmatically hyperfocused on integration in 2017.” That meant establishing a climate that would combine VTS’ old-school broker culture with Hightower’s more product-focused Silicon Valley ethos all while blending employees (and cutting 35 to 50 jobs, Romito said) and technologies.

The merging of the two companies has cleared the playing field, except for some competition from technology like Yardi’s Commercial Leasing Pad, billed as a mobile leasing and tenant support solution, and RealPage, which provides property management software solutions.

Meanwhile, it is not any one technology company or platform that presents the biggest hurdle for VTS in the marketplace.

“The No. 1 competitor factually is still Excel—it’s spreadsheets without a doubt,” Romito said.

Weber added, “When you’re talking about who we’re selling into—and we’re having conversations with landlords of all sizes, brokerages of all sizes—85 percent of the time still to this day…they just have nothing. So we’re taking them from this kind of really shitty world where they’ve got 1,000 spreadsheets, and a CEO asks a question, and it takes them two weeks to get the answer to the question. We’re their platform that they buy to better manage acquiring, converting and retaining their tenants.”

The commercial real estate world has long been considered slow to embrace new technology, but in recent years landlords, who make up the bulk of the VTS customer base, are investing their venture capital funds directly and indirectly into new real estate tech companies. Some are even developing their own in-house technology. VTS, for example got a big plug when real estate private equity funds managed by Blackstone invested $3.3 million in the company in January 2015.

A lot of landlords and office and retail brokers still don’t know what VTS is or don’t use it.

“We have an old (electronic) system that we created,” said Chris Conlon, COO of Acadia Realty Trust in an email. “We are reinventing it now. I have never found that canned software serves us effectively.”

Another landlord, who requested anonymity, said his “asset managers have a system that generates reports, and they have lease abstracts on file. The leasing team keeps up to date via Excel.”

A retail broker at a prominent firm said in an email, “Owners we deal with use it. Never had the patience to learn it.”

But then there was developer, mall owner and property manager Time Equities, which decided to sign on with VTS last May, putting 5.5 million square feet of retail space in the U.S. on the platform. The company, said Ami Ziff, the director of national retail at Time Equities, was “looking for transparency on our retail portfolio.”

Specifically, Ziff said, Time Equities “wanted to be able to understand at different points in time who are largest tenants are, who’s growing, who’s shrinking. You want when you are on the phone to pull up where else a tenant is. I’d have to remember or our broker would have to look it up. There’s human error and immediacy issues with that. For sales, it has a functional sales tracking interface so you can track, summarize, view, estimate and average different sales numbers.”

It also allows users to track “salient lease clause provisions,” Ziff said. For example, he said, “it’ll prompt you if you are going to lease a space that has a neighbor with a right of first refusal or a restriction against a certain use.”

two guys How a Rivalry Between VTS Romito and Hightowers Weber Turned Into a Bromance
A BIGGER PLATFORM: Nick Romito, top, and Brandon Weber, bottom, have joined forces with a combined VTS after years of competing for clients in the commercial leasing and asset management business. Photo: Sasha Maslov/ for Commercial Observer

Another notable company that signed on with VTS post-merger was Brookfield Property Partners, which put its North American office space on the VTS platform in the last quarter of 2017. That amounts to 84 million square feet of office space in the U.S., Canada, London (excluding Canary Wharf) and Dubai. Now Brookfield’s industrial group is looking at adapting the technology, Kevin Danehy, the global head of corporate development for Brookfield, said.

Brookfield had been looking for a “centralized database to manage our portfolio of tenants both at the local level and across the portfolio,” Danehy said. And the landlord wanted to automate its internal approval systems, which VTS does.

The merger between VTS and Hightower ended up being a boon for Brookfield as it faced the conundrum of which firm to select.

“We felt it was one plus one equals three when they combined,” Danehy said.

So far the younger Brookfield employees have been quicker to embrace the technology than the old guard, he said.

One feature that Brookfield hope VTS will build out is its customer relationship management system, or CRM. That is an area where VTS faces more competition from the likes of Apto, Salesforce and MRI.

“Apto is built just for brokers, so our software is focused entirely on streamlining their workflows so they can find new business and work their deals,” said Tanner McGraw, the founder and chief strategy officer for Apto. “Think CRM but without the hassle.”

Indiana shopping center owner and operator Regency Properties is relying on VTS to track the performance of its entire 6-million-square-foot retail portfolio since September 2016. Prior, the leasing team relied on anecdotal information, emails, status meetings and Microsoft Dynamics CRM to do their job. (The property management arm at Regency still uses the Microsoft software package.)

The first thing Dan Brandon, the director of leasing at Regency Properties, does when he gets into the office is pull up Microsoft Outlook and VTS. Those two applications remain on his two computer monitors all day.

VTS has saved the company time communicating within the organization and allows company executives to view a portfolio in real time.

VTS’ strength is on the supply side of the market with more than a dozen countries represented on the platform, Weber said, including one of Australia’s biggest landlords, AMP. It serves its clients from offices in New York, Boston, Chicago, San Francisco, Los Angeles, Dallas and London, and the U.K. is its fastest growing market, Romito noted. (Hightower and VTS both had London offices in the same WeWork space but on different floors.) VTS even lists property for the Crown Estate, which manages real estate that is passed from British monatch to monarch on accession.

Down the line, Romito and Weber hope to provide market analytics to their clients and establish a way for all parties in a deal to communicate via VTS.

“Today, you’re emailing each other for weeks at a time, actual Word documents. You are then going into VTS and putting in the information and figuring out what the actual numbers mean. Then, you go back into a Word document and put in your response, emailing it,” Romito said.

Weber added, “We’re a long ways down the road of modernizing the experience, the analytics, the tools that the landlord and the listing agent and the property manager have for their side of the business. We haven’t yet embarked on creating a really awesome experience for the tenant rep and the tenant side, so those two sides can connect in the VTS platform.”

MetaProp NYC’s Aarons anticipated this year VTS could expand into another asset type like multifamily (although he said, “That’d be a heavy technological lift”), buy a technology company or launch in Asia or other parts of Continental Europe.

Romito told CO that VTS has “no plans to go into multifamily this year,” but “in terms of acquisitions, M&A is a real part of our go-forward strategy, and we’re constantly looking at interesting products we could possibly deploy.” As for geography, he added, “We’re more focused on Continental Europe than we are on Asia at the moment. However, we do think there are significant opportunities in Asia in the future. Our focus continues to be on building our business in North America and the U.K.”

How about an initial public offering for VTS?

“There are a lot of variables you have to take into consideration when exploring the possibility of going public including market conditions, growth strategy, reporting transparency, etc.,” Romito said. “We’re probably a few years out from making that decision.”

Source: commercial

Mall Developers Bet on the Basics—and a Trampoline or Two

The death of the American mall has been a topic discussed ad nauseam. Whether through overdevelopment, the rise of Amazon or the financial woes of traditional anchor tenants like Macy’s and Sears, brick-and-mortar retail—and the mall meccas that house them—have had their obituaries posted for the last year, or more.

Yet, in seeming defiance of the mournful headlines, private investors, with the funds and ability to reinvent struggling properties, are buying into the regional mall model that has defined the U.S. retail landscape since its creation in the mid-1950s by Victor Gruen.

Way back when, Gruen, the Austrian-born architect created the nation’s first grand shopping center, the 800,000-square-foot Southdale Center in Edina, Minn., in 1956 and still operates as the oldest, fully enclosed shopping mall in the United States. He was inspired by the town center of Vienna where he was born. He envisioned a communal gathering spot with a lively mix of commerce, art and entertainment. A socialist who hated cars, Gruen designed the development with long promenades and parking lots built far away to encourage walking. Gruen also envisioned a property with medical centers, schools and residences, not just an array of retail.

He wasn’t alone. Matthew Bucksbaum and his brothers, Maurice and Martin, the founders of what would become General Growth Properties, bought a struggling shopping center in Cedar Rapids, Iowa, around the same time and went on to expand to many small cities throughout the Midwest.

The model was widely embraced, and the rest is history. Today, there are an estimated 1,200 malls nationwide, primarily in suburban areas, inspired by Gruen’s conception—one he grew to despise. They didn’t bring about the vibrant urban centers Gruen envisioned; they led more to the rise of American car culture, suburban sprawl and the decline of walkable downtowns.

Is it any wonder then that the American mall—a concept dreamed up and later cursed by its own creator—would continue to stir debate and contradictory ideas about how to run, refashion or completely reinvent them?

Round1 Bowling
The Moreno Valley Mall is turning itself around by bringing in a bowling alley, gym and trampoline park. Photo: Dan Arnold Photos

Too Much of a Good Thing

“You know, the big question is, How many malls does the country need?”

This is the question asked by Thomas Dobrowski, the executive managing director at Newmark Knight Frank in New York, who handles regional mall investment sales nationally.

“Does it need 500? Does it need 800? There’s no question that the U.S. is over-retailed, and it’s really the regional malls that have been overbuilt. There are just too many, especially with people shopping more and more online and with people looking for more experiential experiences.”

Pete Bethea, an executive managing director at NKF, concurred.

Some of these centers that are in secondary and tertiary markets were just overbuilt with retail. So, instead of there being three viable centers, there might be one,” said Bethea, who is based in NKF’s San Diego office and focuses mainly on open-air suburban mall property sales. “What happens with those other two centers [depends on what] the market lends itself to, right? What is the next evolution of use of that space or that land?”

As mall real estate investment trusts (REITs) have been shedding their B- or C-level malls or noncore assets over the last five years, private equity investors have stepped up to purchase them.

“Contrary to all the news out there, there have been a lot of transactions happening in the enclosed mall space,” Dobrowski said. “Some of the malls we’re selling are almost exclusively to private equity or high-net-worth buyers who don’t have the same scrutiny that an institutional or typical mall REIT would have when it comes to repositioning or redeveloping these malls by bringing in alternative uses.”

Dobrowski said that a lot of the malls he sells are purchased to continue as malls with about one-third bought to be redeveloped.

He pointed to the Moreno Valley Mall in San Bernardino County outside of Los Angeles, which was previously owned by GGP before the company filed for bankruptcy in 2009 in one of the largest commercial real estate collapses in U.S. history, as a prime example of a mall turnaround.

NKF sold the property on behalf of CW Capital, which had bought it back from GGP, for $63 million in November 2017 to International Growth Properties, a small private equity firm in Beverly Hills.

IGP brought in a gym, Crunch Fitness—in a move most mall operators previously shunned, according to The Wall Street Journal—Round1 Bowling and Amusement, Action Time Bungee Jumping (a trampoline park) in addition to movie theaters and anchor tenants like Macy’s already on the premises.

“They really transitioned this mall from a kind of cookie-cutter enclosed mall with your traditional anchor tenants into a shining star of a lot of the malls that we sold this year,” Dobrowski said.

He and Bethea expect the trend to continue given market conditions.

“Pricing now is at a level where it makes sense to purchase a property and then go reinvest and reposition it,” Bethea said. “We’re in the early innings of that starting to happen. There are double-digit cap rates. Certainly, in the world of suburbia, we are starting to approach the 8 or 9 [percent cap rate] in submarkets.”

Dobrowski said the trend will likely accelerate in the next 12 to 24 months, depending on the state of major retailers.

“Last year was a big year in terms of stores closing and bankruptcies, and 2018 will probably be another big year,” he said. “But to redevelop a mall takes a long time. It’s a two- to five-year process, so we’re really just in the early phase of malls being purchased to eventually be redeveloped.” (For more from Dobrowski, see the Sit-Down on page 32.)

Adapt or Perish

IGP’s strategy of incorporating something like a trampoline park is exactly what the mall redevelopers are looking for to attract consumers to their properties, from families to millennials. Some are going even further. The long-stalled American Dream Mall in Northern New Jersey is back in business with construction resumed and developer Triple Five Group targeting a fall 2018 opening. The 6-million-square-foot property at the Meadowlands sports complex will feature the country’s first indoor ski slope, an aquarium, an indoor water park with a 1.5-acre pool capable of generating seven-foot waves and the largest indoor theme park in the Western Hemisphere with four roller coasters.

Triple Five, the Canadian company that already owns the two largest malls in the Western Hemisphere, the Mall of America in Minnesota and the West Edmonton Mall in Canada, is obviously betting big on the megaproject despite the pessimism surrounding traditional brick-and-mortar enterprises of which the shopping mall is emblematic. According to The New York Times, the developer has spent $700 million thus far on the project.

Ami Ziff, the director of national retail at Time Equities, is in the process of adding amenities to reinvigorate a few of its regional mall properties, including the Newgate Mall in Ogden, Utah, for $69.5 million in August 2016 from GGP, as CO previously reported and two malls in Tennessee purchased from Chattanooga, Tenn.-based CBL & Associates Properties for $53.5 million last May.

In addition to adding a Fly High Trampoline Park, which will occupy 41,000 square feet at the Newgate Mall, Time Equities is looking to add amenities that can meet the human’s need to socialize and appeal to social media and Instagram-addicted consumers.

There are plans for flash mobs as a special event, as well as immersive experiences, including a bubble and ball exhibit like the one the company has at its residential condominium at 50 West Street in Manhattan.

At Newgate, Time Equities will be renovating the food court area with the addition of a fireplace and common-area seating meant to evoke a ski lodge with seasonal and community programming—think caroling and hot chocolate around the fire during the winter holidays, s’mores and ghost stories come Halloween.

“There is such a difference in the kind of work that goes into owning a mall versus a strip center,” Ziff said. “You might have a lot of the same tenants, but the fact that you have this common space, there’s a significant burden on the landlord as well as the tenants to produce experiences. There needs to be a whole marketing agenda and program that we roll out at different malls based on different needs, timing and markets.”

Ski slope in Dubai
The long-stalled American Dream Mall will include an indoor ski slope like the one in Dubai . Photo: Getty Images

Alternative Uses

In addition to off-the-hook amenities, mall developers have turned to creating truly mixed-use properties, including creative office space, residential, grocery and, at some, alternative uses like medical facilities, thereby creating in effect the one-stop community center Gruen once envisioned.

“The same Baby Boom population that fueled regional malls and other retail property types in the 1950s, ’60s and ’70s continues to do so,” said Mark Hunter, the managing director of retail asset services for the Americas at CBRE based in Chicago. “We’re now seeing Baby Boomers [are] now requiring additional medical services and [how they’re being integrated]. A perfect example of that is the 100 Oaks Mall in Nashville, Tenn.”

In 2007 100 Oaks Plaza, which bought the property the previous year for $49.2 million, redeveloped one of its department stores into a medical center for The Vanderbilt University Medical Center, which leases over half of the 850,000-square-foot building. “I think you’re going to continue to see this trend where there’s a mix of medical, office, entertainment and residential as different markets adapt to the changing environment,” Hunter said.

Data centers could also fill in space left by struggling retailers, given the rise in cloud storage needs, pointing to how Rackspace, a web-hosting company based in San Antonio, moved its corporate headquarters into the local now-shuttered Windsor Park Mall in 2012.

Then there is a model that turns the whole American mall discussion on its head. Billed as a “solution to the retail conundrum,” Case Equity Partners introduced a patent-pending concept called the Shopping Fulfillment Center last month. The SFC, a hybrid of brick and click, combines a vast fulfillment center in the back of a retail center component. In the proposed model, retailers would share logistics costs and require much less in terms of traditional square footage. It would allow customers to peruse or test out their products, but instead of, say, having to stock several varieties of a high-touch item like a sweater, one would suffice with a vast array of options housed in a communal warehouse in back. (For more on the concept, see Chopp’s column on page 35.)

Omnichannel and Co-Existence

Arthur Coppolla, the chairman and CEO of Macerich, one of the country’s leading owners of high-end mall REITs, is bullish about the future of brick-and-mortar retail.

“If you read the social media and the news media, you would come to the conclusion that Amazon and e-commerce are killing all legacy retailers, but I see digital as being the best of friends with brick-and-mortar retail,” Coppolla said during a keynote talk at “Rethink: Emerging Macro Trends in Real Estate” in Los Angeles this past December. (Coppolla declined to be interviewed for this article.)

Coppolla said the common misperception among investors is that Amazon is synonymous with e-commerce “and that there’s nothing else, which is not true.”

Digitally made, vertically integrated brands—brands that have a niche and identified a broad market to disrupt and are not Amazon—are where it’s at in terms of the next great brands.

“Digitally native is a very chic place to be born,” he said. “Digital brands are growing at a far greater rate than e-commerce itself. If you look at the next [few] years between now and 2020, the digitally native brands are going to be generating as much business as Amazon direct.”

If you want a glimpse into the future of traditional retail, he said, just look to its past.

“The future of retail is its past,” Coppolla said. “If you look at legacy retailers, department stores were everything. They distinguished themselves in how they curated brands for their customers. But they cut sales people on their floors and lost touch with their customers. We have to be curators of brands like how department stores used to be.”

Successful malls need to take over where legacy retailers faltered and curate brands. E-commerce, he said, is the driver of brand creation today, and as such, he is actively seeking digitally native brands to his properties and the feeling among these brands is mutual.

“These digitally native brands, they all believe that brick and mortar is where they want to go because, when they open their store, that’s when they feel that they have arrived. It’s the last mile for them in terms of having a relationship with their customer,” Coppolla said.

Not only can e-commerce and brick and mortar co-exist, but according to Hunter at CBRE, the perception that online selling eclipsed traditional retail is much overblown.

“When you really delve into where most retail sales are happening today, as of last year, 9 percent of all retail sales were online, meaning 91 percent of all other retail sales were done in a physical space,” he said. “Our research shows that peaking in the next, call it, eight to 10 years in the high teens. Still, the bulk of retail sales will be done in physical space.”

The more important point, he said, is that, to thrive, retailers must be adept at omnichannel distribution.

“Whether you’re on your smartphone, or you’re in the store, it’s going to be a much more seamless transaction. You’re going to continue to see that happen, and the retailers that can adapt to the omnichannel distribution, they’re going to be very successful,” he said. “Those behind the times, that don’t adapt to that, will struggle more.”


Source: commercial

First Republic Lends $95M on Time Equities’ 50 West Street Condos

Time Equities has secured a $95 million refinance from First Republic Bank backed by 46 condominium units within its recently completed mixed-use condominium skyscraper, 50 West Street, according to records filed today with the city’s Department of Finance.

The new financing consolidates and replaces roughly $70.4 million in previous debt including an acquisition loan, a building loan and two project loans from PNC Bankwith a new $24.6 million gap mortgage.

The 784-foot-tall, 64-story, roughly 450,000-square-foot condominium tower—situated between Rector and Joseph P. Ward Streets in the Financial District—is comprised of 191-units with floor-to-ceiling views of the World Trade Center, New York Harbor and the Hudson and East rivers. The building includes approximately 21,000 square feet of commercial retail space, according to PropertyShark, and the third floor houses 15 office condominiums and a conference room.

Francis Greenburgers Time Equities has owned the site since 1983 and began construction on the tower in 2007. Development hit a wall during the recession, only to pick back up in 2013 where it left off. The firm began condominium sales two years ago, but Greenburger told CO in August that sales have slowed compared to when he first put the units on the market. Greenburger added that Time Equities had already paid off $290 million in debt on the property through previous sales. 

Units currently available for purchase within the tower range from $2.4 million for three-bedroom, one-bathroom condos to a $24.5 million six-room, three-bedroom, three-and-a-half bathroom penthouse, according to StreetEasy. Monthly rents for currently available rentals range from $2,500 for studios to $36,000 for a four-bedroom, four-bathroom penthouse. 

First Republic Bank did not return a request for comment. 


Source: commercial

Owners Magazine 2017: Interviews with NYC’s Top Landlords

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At the risk of stating the forehead-slapping obvious, it’s been a strange 12 months.

There’s been a mixture of good and bad real estate news that can paint a picture of continued stability or darkening clouds on the horizon, depending on your point of view.

By October, the vacancy rate in all three major Manhattan markets for office space appeared to be falling, per Cushman & Wakefield data. Hundreds of thousands of square feet have been leased by Spotify, GroupM, Amazon and others. All of that is inarguably good news.

However, a year ago, few people knew that we were sitting on a retail powder keg ready to blow and take some of the biggest names in the industry with it, like Toys “R” Us, Aerosoles, Payless, Radio Shack…you get the idea. This is inarguably bad.

This is one of the reasons why it’s important to have a magazine like this one.

Yes, the data, the deals and the numbers are critical to understanding the state of real estate. But it’s also important to get a sense of what the key players are thinking right now. That’s why we asked 36 of the biggest names in the business what their vision of the market looks like.

We’ve supplemented these questionnaires with our own reported features.

Last year, New York was considered immune to the vicissitudes of the world economy because we were always a safe, stable place to park cash. That looked like less of a sure bet when China announced new outbound investment rules. Lauren Elkies Schram examines the topic in her story in this issue.

Some in the real estate community long hoped for a challenge to Mayor Bill de Blasio in this year’s mayoral election and put substantial money behind Paul Massey (one of their own) to take the reins of City Hall before that fizzled out. At the risk of propagating a Dewey-Truman blooper (we ship this magazine before Election Day), Aaron Short reported what developers are expecting and hoping for in de Blasio’s second term.

While many developers have spent the last few years touting the Far West Side of Manhattan, there is actually quite a bit of activity on the East River, something that Rey Mashayekhi examines in depth.

Finally, Liam La Guerre looked at something that’s always been written off as anathema to real estate developers: technology. It turns out, the shrewd owners are not only interested in tech, but they’re also developing their own. — Max Gross 


Source: commercial

What’s Happening With Chinese Investment in New York City Commercial Real Estate?

There was a lot of nail-biting from the New York real estate community heading into this year after hearing that the biggest whale in terms of investment might not be allowed to swim in our waters. We’re talking, of course, about China.

With China’s capital controls in place, the country was expected to tamp down outbound investment in 2017. While the number of New York City investment sales deals involving the country has dwindled significantly this year, China still represents the biggest cross-border player, according to Cushman & Wakefield.

Chinese investments dropped to 16 percent, or six, of the 38 foreign capital deals (excluding debt deals) in New York City in the first three quarters of the year, versus 28 percent, or 16, of 58 acquisitions at the same time last year, C&W data indicates.

Francis Greenburger, the chairman and chief executive officer of Time Equities, explained the issue in Commercial Observer’s survey for this year’s Owners Magazine: “Although there are exceptions, Chinese investors are subject to government restraints in arranging to transfer funds out of China. This has caused a reduction in transactions by one of the most active group of New York City buyers.”

But in terms of dollar volume the dip in Chinese investment in New York City hasn’t been dramatic, and the country still has spent more than its competitors. Chinese investments made up 11 percent of the $24.51 billion spent on commercial real estate in New York City this year through September compared with last year’s 13 percent of $45.87 billion.

Despite a slowdown in deal flow and a reduction in investment sums, the Chinese have been going for big deals in New York City.

“Starting in 2016 through the first half of 2017, China surpassed Canada as the largest foreign investor in New York City,” said investment sales broker Douglas Harmon of C&W. “Capital controls caused Chinese buyers to participate in less transactions, but the capital was consolidated into the larger deals.”

Harmon and colleague Adam Spies are representing SL Green Realty Corp. in the sale of a 49 percent stake in a 54-story office tower at 1515 Broadway between West 44th and West 45th Streets to China Investment Corporation (CIC), a Chinese sovereign wealth fund. It is a property valued at $2 billion. A spokesman for SL Green said the deal has not closed.

In the priciest foreign property acquisition of the 12 months ending in October, Chinese conglomerate HNA Group paid $2.21 billion for 245 Park Avenue between East 46th and East 47th Streets. The sellers were Canada-based Brookfield Property Partners and the New York State Teachers’ Retirement System. The deal represents one of the highest prices ever paid for a Manhattan office property. (HNA also bought a mansion at 19-21 East 64th Street for $79.5 million this year.)

At the end of last year, CIC bought a 45 percent interest in the former McGraw-Hill Building at 1221 Avenue of the Americas between West 48th and West 49th Streets from Canada Pension Plan Investment Board. The property was valued at $2.29 billion.

Two other large Chinese acquisitions in the last year include WanXin Media’s $68 million buy of an office building and vacant lot at 7-15 West 44th Street and office developer Soho China picking up the landmarked John Pierce Residence at 11 East 51st Street for $30 million.

Alex Foshay, a senior managing director in Newmark Knight Frank’s capital markets division, said the Chinese government’s restrictions have “really strangled all major investment out of mainland China.”

Foshay cited as an example, China’s Anbang Insurance Group’s pulling out of an investment in 666 Fifth Avenue. Kushner Companies was planning to redevelop its flagship New York office tower with Anbang but talks terminated in March.

Terrence Oved, the head of the real estate department and a partner in the law firm Oved & Oved, said he has seen the drop off in acquisitions generally, and those that are closing are taking longer to complete.

“That rapid-fire tennis-match-like quality that we saw in 2016 [between players] is glaringly absent in the foreign transactions in 2017,” Oved said. “The perception of foreign money is that New York is in the later stage of the cycle.”

Also, Oved said, New York City is facing global competition from other world cities that weren’t as competitive the last few years. He pointed to Silicon Valley’s appeal to the tech company likes of Amazon, Facebook and Microsoft.

HFF’s Andrew Scandalios said that deal flow is down this year because properties are overpriced.

“Buyers are less enthusiastic to pay 2015 prices, and the sellers aren’t going to move [them],” he said. “We haven’t seen the offshore capital abate. It’s just they’re waiting for better pricing opportunities.”

Scandalios worked on the deal in which Singaporean sovereign wealth fund GIC picked up a 95 percent stake in the 50-story office tower at 60 Wall Street from Paramount Group and Morgan Stanley with a $1.1 billion valuation. (He also helped secure GIC’s $550 million acquisition loan from German bank Aareal Capital.)

In the summer, Germany-headquartered Allianz SE contributed the 18-story, 352,000-square-foot office building at 114 Fifth Avenue (which it acquired in 2015 with L&L Holding Company) into a then-new joint venture with Columbia Property Trust to buy and manage U.S. trophy properties. Columbia contributed a Palo Alto and San Francisco property to the venture. The three properties were valued at $1.3 billion and HFF negotiated the deal.

Commercial real estate deal volume is down this year for all foreign buyers in New York City as of the third quarter to 28 percent of all investment sales, C&W found, from 34 percent a year prior. (A look at foreign investment in New York City is limited to investment sales deals because debt and equity transactions are harder to track.) The findings parallel the nationwide trend. As of mid-2017, foreign investors represented 13 percent of all U.S. transactions by volume versus 16 at the same point in 2016, Real Capital Analytics data indicate.

Foshay said that a number of overseas buyers are “skeptical” about plunking down large sums of money (over $150 million) in the U.S., out of concern about “where we are in the cycle.”

This doesn’t mean, of course, that foreign investors aren’t seeking out deals nationwide. And Canada heads the procession.

Canada has sealed 255 U.S. commercial real estate acquisitions in the last year, followed relatively closely by China with 215 before dropping off significantly with Singapore and its 36 deals, RCA data show.

In the last year, Canadian entities have closed some notable purchases in New York City. Oxford contributed $65 million in a $130 million deal for 427 10th Avenue and Brookfield Property Partners input $185 million of $370 million for 1100 Avenue of the Americas. In addition, Canadian pension fund Ivanhoé Cambridge and Chicago-based Callahan Capital Properties paid $652 million for Goldman Sachs’ former headquarters at 85 Broad Street (Ivanhoé Cambridge invested $326 million in the deal).

Finally, Canada-based Oxford Properties Group is in the process of purchasing the St. John’s Terminal site at 550 Washington Street from Westbrook Partners and Atlas Capital for $700 million.

In New York City specifically, foreign investment has been dropping because of a dearth of trophy property on the market, according to a couple of brokers.

“There just wasn’t as much property available this year as there was last year,” said CBRE’s William Shanahan, who along with CBRE’s Darcy Stacom brokered the 245 Park Avenue deal.

The duo also sold the 31-story office building at 685 Third Avenue for TH Real Estate and Australian sovereign wealth fund the Future Fund, to Japanese real estate firm Unizo Holdings for $467.5 million.

Foshay concurred about the lack of inventory.

“I would say there has been a lack of trophy product to be purchased,” he said, but “there’s been quite a lot of availability in investment sales of non-trophy assets, meaning Class B product, and it is that trophy investment product that particularly appeals to overseas investors.”

Going forward, Shanahan expects to see “more participation” from Japanese investors.

Harmon said, “We think Chinese investment should pick back up in the first quarter of 2018. Additionally, South Korea, Japan, Norway, Saudi Arabia and Canada make for plenty of competition for domestic investors in 2018.”


Source: commercial

Time Equities Sells Tribeca Retail Condo to Marx Realty

Francis Greenburger’s Time Equities has sold an 11,500-square-foot retail condominium at 124 Hudson Street in Tribeca to real estate investment firm Marx Realty & Improvement Co. for $15 million, Commercial Observer has learned.

Marx closed earlier this month on the property, located at the base of a nine-story, 26-unit residential condominium building at the corner of Hudson Street and Ericsson Place, according to sources with knowledge of the transaction.

The retail condo is comprised of 7,009 square feet of ground-floor retail space plus another 4,491 square feet of below-grade space, and is currently occupied by a Warburg Realty sales office, the Tribeca Community School and The Little Gym of Tribeca. All three tenants are under long-term leases with no vacancies imminent, sources said, declining to specify the exact length of the leases.

Marx acquired the property as part of a 1031 exchange involving its sale of a mixed-use, residential and commercial property in Louisville, Ky., according to Craig Deitelzweig, the company’s president and chief executive officer.

“We found this corner of Tribeca to be extremely enticing,” Deitelzweig told CO, citing the location’s high traffic and its proximity to Citigroup’s headquarters complex at 388-390 Greenwich Street. “We’re big believers in Tribeca, and New York City in general,” he said, adding that the deal is “part of our continuing effort to grow in New York.”

Itan Rahmani and Jeremy Nazarian of Venture Capital Properties represented Marx in the deal, Nazarian confirmed, while Time Equities’ Scott Klatsky and Hy Schermer represented the seller in-house.

“Despite market sentiment, there has been a continued demand for quality brick-and-mortar retail assets, especially in neighborhoods like Tribeca,” Klatsky, Time Equities’ director of retail leasing and acquisitions, said in a statement. “Savvy investors, like Marx Realty, are taking the long-term view by betting on a neighborhood where boutique retail has traditionally thrived.

Marx is a subsidiary of the publicly traded Merchants’ National Properties, which has a portfolio of 68 properties in 16 states across the country. The firm’s New York assets include 545 Madison Avenue, 708 Third Avenue, 201 East 57th Street and the Cross County Shopping Center in Yonkers.


Source: commercial

Time Equities’ David Becker Talks CRE Investment at Home and Abroad

David Becker knows a thing or two about global markets. As head of the equity division at Time Equities, he oversees more than 1,500—and counting—investors globally and has an investment footprint that extends to Germany and the Netherlands. Becker paused his globetrotting to sit down with Commercial Observer and described which markets and assets are piquing the firm’s interest today and why investing in New York City is like a game of musical chairs.

Commercial Observer: What’s your role at Time Equities? 

Becker: I run our equity department, so I oversee the team that interfaces with the investment community throughout the U.S. and abroad. We manage somewhere in the neighborhood of 1,500 investors—and growing. It’s a very active business, and it’s really helped the company to expand significantly. We now have accredited high-net-worth family-office-related investment capital investing with us on our various properties and in our fund. It’s allowed the firm to grow at a really nice, consistent pace. 

Do you have many overseas investors? 

We have some. There are some tax-related issues [for those investors], but we’re exploring how to expand that horizon. We’ve gone abroad to Germany, Canada and the Netherlands so far. That expansion has given some international investors interest in investing with us. So, we’re starting to attract these investors; we just need to bring them in in a more efficient way. 

Why Germany and the Netherlands in particular?

In the mid-1990s, Time Equities went to Canada because the Canadian dollar was very weak—65 cents on the U.S. dollar. There was a time when Quebec had a separatist movement, and there were a bunch of political people in Quebec who wanted to create it as its own country and separate from the rest of Canada. That freaked out a lot of people, and so there was a lot of uncertainty and really no bank lending. We had an opportunity to invest because the U.S. was coming out of a recession at the time, and we were offered properties in Canada that were unbelievably cheap. Buildings like 55 Fifth Avenue, or the equivalent of a 200,000-square-foot office building, that you could buy for 10 Canadian dollars a square foot. There were unbelievable discounts, and Francis [Greenburger, Time Equities’ chairman and chief executive officer] and Bob [Kantor, the president and chief operating officer] went up there and saw some really great buying opportunities. It turned out to be a great portfolio. 

In the early 2000s, a similar thing happened in Germany. It was just coming out of a recession, and there were a lot of different factors that led to a similar dynamic. So, we went in and bought a number of different properties. We have since sold some, but we kept the majority, which have done phenomenally well. Today, we see a similar thing happening in the Netherlands. 

What’s Time Equities’ strategy when it comes to investing overseas? 

One of the primary principles that Francis speaks about is that he is only interested in investing internationally in countries that have a very transparent political system. So, not to name countries that we wouldn’t invest in, but when you think of Canada, Germany or the Netherlands, they are very transparent in the way they operate and very similar to the U.S. in terms of their laws and real estate ownership strategies—so that’s very encouraging. We have looked at other European countries, but we haven’t gotten comfortable. Of course, we would go to the U.K., but the pricing in the U.K. is similar to the New York or San Francisco market. It’s very overheated and very competitive. 

We’ve also tried to go to countries that are also facing some kind of hurdle in their own economy. In the Netherlands, we acquired two portfolios in the last 12 months for $60 to $80 a square foot—B-plus office buildings that couldn’t be produced for $250 or $300 a square foot, and at 10 percent returns and two-thirds occupancy. We were able to convince a German lender to finance the portfolio, and the rates were 150 basis points less than they are in the U.S. So, we bought a high return, financed at a low return. 

Has Brexit impacted your investments at all? 

No, not yet. We haven’t seen it find its way through. That’s not to say that it won’t. Being in the real estate business, I have a lot of real estate friends and colleagues who say, “You gotta go to the U.K.,” but the prices in London would be the equivalent of New York. Prices are very competitive, and there is investment capital coming from all over the world that still sees London as a primary financial hub of the world. So, until that shifts, I don’t know that the opportunities will be there…but it’s something to keep an eye on. 

Do you see it ever shifting? 

I see London as similar to New York City in that it’s hard to imagine London not being a primary hub having an influence in the world. If there was a blip or buying opportunity, we’d take advantage of it. 

Describe your opportunity funds.

Historically, we would invite investors into any deal that we were buying at any given time, but they weren’t able to balance their portfolio with us; it would be a case of whether they had money at a particular time and whether they liked a deal. Now, we’ve evolved as a company, and we think it’s much more efficient, for us and for the investor, to have a range of different properties that Time Equities is buying in one fund. They’re called the Time Equities Inc. diversified income and opportunities funds, and we have a series of them. We’re now into Fund 3, which is a $100 million offering, and essentially, it will be a collection of partial-ownership assets. It’s income-based but with growth. 

Fund 3 contains U.S. assets only?

It will have assets that we’re buying in both the U.S. and abroad—a mix of properties that are distributing good, solid income with good upside potential. The unique thing about the fund is that our view on ownership is much longer term. A lot of our competitors think of real estate in terms of buying and selling, whereas we think of it as buying and financing. The difference is that we think we can exit the capital to an investor in the same way as if you sold it, only with our strategy you have continued, long-term ownership. If you think about wealth creation, it really comes not from people who bought and sold but from people who bought and held. That’s our fundamental buying strategy. 

Are you investing in New York right now?

Over the last eight years New York has done nothing but go up like a rocket. So it’s a hard market to bet against, in terms of when things will turn. It’s our view that things are very overheated. The prices per square foot are still off the charts, and returns are very low, so you’re really betting on total appreciation. That’s the New York play. Fundamentally, we like income, and we’re dividend-oriented and cash-flow–driven. We’ve made some purchases, and we’re active on the development side, but in terms of buying, it’s been a challenge for us to compete in New York.

I think there will be a point when something happens; I don’t know what that will be, but it’ll be something that we’re not even thinking about—either finance-related or natural disaster or terrorism-related. Something will shake the system to a point where prices will have to take a breath. So from our perspective, we think there are better opportunities in other parts of the country and other countries for the moment. As soon as we see New York cool off and the fundamentals back in line, we will be active again. 

In which markets are you getting the returns you’re seeking? 

The coastal states in the U.S.—New York and California—are very similar in terms of pricing. Middle America has had better opportunities, so we’ve bought a number of properties in the Midwest and the Southeast. We’re buying at a fraction of the price that it would cost to build. I know everyone is talking about Amazon and the death of the mall, but we’ve been actively buying malls recently and have done very well. We just bought two large malls in Tennessee—for one, we paid $50 a square foot at a double-digit return, going in all cash. It has some credit risk because we have a J.C. Penney in it and we don’t know [the retailer’s] future, but even without it, the property still earns 9 to 10 percent [returns]. We think it’s almost as if some assets have been priced as if they’re already dead and that there will never be a use for a mall again. We think the risk has been overexaggerated. That’s not to say we don’t understand the dynamic of what is happening with online retail—it’s just that the impact on pricing has been exaggerated.

What are you buying overseas?

Mainly office, some industrial because it’s a little easier to oversee with a local partner on the ground. I’m sure we would look at retail and residential, but residential has been very competitive everywhere. 

What’s your opinion on New York residential projects? 

We’re building residential for sale. So, if you think about it, we’re buy and hold players, but we’re buying and selling residential. And that’s because the numbers we’re selling at are astronomically high. On West Street, it’s somewhere north of $2,500 per square foot for the lower-end product. The numbers don’t work for us to buy and hold residential for us. They make sense to buy and sell. 

What’s next for Time Equities? 

I see us continuing to buy office. I’d love to locate some industrial assets that we can acquire—that would be a good mix. What we’re trying to accomplish as a company is just to remain very diversified—both by geographic area and by product type. To be concentrated in one particular area isn’t really the Time Equities model. The beauty of our strategy is we have a lot of assets that aren’t really correlated to one another, so Midwest will perform when New York is not performing, or multifamily will do well when office isn’t. 

How do you feel about the outer boroughs?

They’re priced like Manhattan. Long Island City [Queens] is a hot place right now, and Brooklyn is operating like a full market. We look at markets that still have upside in terms of their evolution or go into markets that are more mature yet deeply discounted for whatever reason. New York is attractive to all the foreign capital sources, so you have a lot of different people competing for X amount of deals, and you get this price surge, sort of like musical chairs. You just don’t want to be left without a chair.


Source: commercial

With Retail Writhing, What’s the Secret of a Successful Mall?


Source: commercial