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Category ArchiveWestbrook Partners

Four Reasons Why Oxford Properties’ Big Bet on St. John’s Terminal Will Pay Off

Oxford Properties Group and the Canadian Pension Plan Investment Board (CPPIB) announced yesterday that they closed on the $700 million St. John’s Terminal redevelopment project in Hudson Square.

The acquisition of the south portion of the site at 550 Washington Street from Westbrook Partners and Atlas Capital Group was major news, with Oxford owning a 52.5 percent interest in the project and control of the development and Canada Pension taking the remaining stake.

The City Council granted a zoning variance in December 2016 for the 3.3-acre project, which is supposed to include 1,500 rental apartments along with a mix of office and retail, when it was completely under Westbrook and Atlas. Westbrook and Atlas landed $300 million in financing from Morgan Stanley last year and used $100 million to acquire 200,000 square feet of development rights, as CO previously reported. (Westbrook and Atlas Capital will continue to own the northern portion of the site.)

St. John’s Terminal is not Oxford’s first rodeo on the Far West Side of Manhattan; the company is currently working with Related Companies on the Hudson Yards megaproject.  

We talked to real estate experts to get their takes of why spending $700 million for this project was a savvy move for Oxford and CPPIB.

primaryphoto44 Four Reasons Why Oxford Properties’ Big Bet on St. John’s Terminal Will Pay Off
550 Washington Street.  Photo: CoStar Group

Hudson Square is ripe for redevelopment (and close to cool neighborhoods)

Hudson Square hugs up next to Greenwich Village and West Village to the north and Tribeca to the south. Not to mention Soho is to the east. It would be difficult to find four trendier neighborhoods on the island of Manhattan.

“What’s the old real estate adage—location, location, location, and this location has a tremendous amount of untapped potential,” said Daria Salusbury, the president and CEO of Salusbury & Co., which works on branding and consulting for developers.  “And Oxford is very, very smart, and they are very well financed.”

Salusbury was a senior vice president with Related Companies and worked on the development of the firm’s 261 Hudson Street project in the area before she left in 2016. The Robert A.M. Stern-designed rental building features approximately 200 apartments.

She added, “In three minutes you are sitting in Tribeca at a restaurant. And in five minutes you are in Soho sitting in a restaurant. In six minutes you are in West Village sitting in a restaurant. How can you go wrong?”

Plus, while the area was long known for its extensive warehouses, as development has thrived in the surrounding neighborhoods, Hudson Square has come into its own.

“Ride your bike down the West Side Highway and you’ll see the amount of development right off the highway on the West Village,” Steven Kaufman, the president of Kaufman Organization, said. “This is just south of all of that. It’s in between the West Village and Tribeca. And it’s like a hole in a doughnut there. It’s very ripe for development.

He added, “And it’s a big site. It’ll be a city of it’s own. It could be like Battery Park City.”

 

…And has no landmark issues!

Plus, it’s not like the New York City Landmarks Preservation Commission can get involved like in other neighborhoods nearby.

“Greenwich Village, Tribeca and Soho are protected because of the landmark issues. [But] it’s something that they don’t have to worry about, and here they can build something of scale and size,” said Robert Dankner, the president of Prime Manhattan Residential. “The fact that it is not landmarked and it’s one step to the left—it’s a very obvious next step.”

primaryphoto43 Four Reasons Why Oxford Properties’ Big Bet on St. John’s Terminal Will Pay Off
A rendering of other residential properties that could be constructed at the site. Rendering: CoStar Group

The Hudson River Park is a perfect amenity for future tenants.

The 550-acre park that extends from Battery City to the West 59th Street offers a plethora of activities for locals. It attracts 17 million visits each year, according to the Hudson River Park Trust’s website.

‘[St. John’s Terminal] is a two-minute walk to the esplanade. And there are a lot of possibilities there,” Salusbury said. “Look how much money the city put in to create that esplanade. You can bike with your kids or take a walk.”

 

They’re not going into Hudson Square alone.

Oxford Properties is certainly not the only ones working on projects in the area. Hines, Norges Bank Real Estate Management and Trinity Church Wall Street has an 11-building portfolio of 5 million square feet in the area, the majority of which is office space. They have CBRE and Newmark Knight Frank leasing up the buildings, as CO reported in 2016.

“Hudson Square has undergone an exciting evolution from New York City’s printing district to a vibrant mixed-use neighborhood with an impressive mix of creative companies, new residential opportunities, local eateries and other businesses that call Hudson Square home,” said Ellen Baer, the president of the Hudson Square Connection. “A waterfront community, amazing access to public transportation and lower west side location, Hudson Square is taking its place as a truly great New York neighborhood.”

 

But one note of caution for the developers trying to outdo other trendier areas nearby:

“As long as [Oxford and CPPIB] don’t get too ambitious with pricing and they recognize that it’s one step to the left, they should have a home run,” Dankner said. “They can’t get too ambitious because they have to look at [other projects] like Greenwich Lane, which is in the heart of the Village. That’s where everyone wants to be. In Hudson Square, there are still some spotty streets. You are not just there yet. It doesn’t have the neighborhood cleaners. It doesn’t have restaurants. It’s not old enough. It’s new. History has to be created there. It doesn’t have personality [yet].”

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

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Source: commercial

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Source: commercial

St. John’s Terminal Scores $300M to Refinance, Buy Air Rights

The redevelopment of St. John’s Terminal is one step closer to reality.

Westbrook Partners secured a $300 million loan from Morgan Stanley backed by the site of the planned 1.7 million-square-foot St. John’s redevelopment project, according to records filed with the city today. The loan refinances existing debt on the property and allows Westbrook to acquire the needed development rights to move ahead with the project, pursuant to the agreement reached with the city, a spokesman for Westbrook confirmed.

The project, spearheaded by Westbrook and Atlas Capital Group, was granted a zoning variance by the City Council last December, as DNAinfo reported at the time.

If all goes as planned, the redeveloped river-front property will hold more than 1,500 apartments as well as offices, retail and a hotel.

Protracted negotiations with the city meant the project will have 30 percent of its residential units set aside as affordable housing, previous reports show, but not be subject to the mandatory inclusionary housing rules.

The new loan consolidates two other $100 million loans on the property and the other $100 million will be used to acquire 200,000 square feet of development rights, the spokesman confirmed.

The mortgage closed late last month. Morgan Stanley did not immediately respond to request for comment.


Source: commercial