From April through September of last year, the 15 biggest commercial real estate investors in New York traded over $16.17 billion in property. Over the next six months, following the collapse of Lehman Brothers, the new 15 biggest traded around $1.892 billion, or barely one-tenth as much.
It’s not so much the dollar amounts—everyone knows things are bad—it’s who’s doing the spending. Gotham’s bigger property gobblers are increasingly domestic, privately held and from around these parts.
In those pre-Lehman months, the 15 biggest investors included one publicly traded REIT—Mort Zuckerman’s Boston Properties—and two sovereign wealth funds from the Middle East—Dubai and Abu Dhabi (remember them?). In the six months post-Lehman, there were zero sovereign wealth funds and zero traded REITs.
Before September, one-third of the 15 biggest investors were from firms headquartered outside the U.S., including three in Germany—the Paramount Group, Allianz and Jamestown. Since then, all are headquartered domestically.
And those headquarters are in New York: Of the 15 biggest investors post-Lehman, 10 hail from the city, including the No. 2 on the list, Lloyd Goldman’s BLDG Management, a landholding concern that ballooned locally in the 1960s and 1970s.
Most of the investors, too, like BLDG Management, are privately held; these include New York University, the bright green Jonathan Rose Companies, and RLJ Development, the equity firm run by BET founder Robert Johnson.
But the biggest commercial property investor in New York in the six months from October through April was not only publicly traded, but from … Los Angeles. CB Richard Ellis Investors, the independent investment arm of the brokerage services giant, chaired by California Senator Dianne Feinstein’s husband, Richard Blum—he stood behind President Obama at the inauguration, wearing an appropriately blue scarf—is headquartered in L.A. (though it does have a formidable New York presence, to say the least).
IT’S WHAT CBRE INVESTORS did to reach the top spot after the fall of Lehman that brings us full circle to the dollar amounts. In early March, the firm closed on the majority of the condo interest in 1540 Broadway, the 44-story Times Square tower, for $355 million, the biggest commercial investment trade so far this year.
The kicker: Harry Macklowe bought the tower in spring 2007 as part of his $7 billion Masters-of-the-Universe portfolio buy that soon went right into the hands of his creditors. In that 2007 deal, 1540 Broadway was valued at $950 million. The biggest investment of the pre-Lehman months was the $2.8 billion deal for Mr. Macklowe’s GM Building, led by REIT Boston Properties, with the help of Middle Eastern firms and Goldman Sachs—an investor amalgam that’s a perfect snapshot of those times if there ever was one.
Do the numbers portend the future?
The single biggest story in Manhattan, and national, commercial real estate over the next 18 months will likely be defaults—the Deutsche Bank report from two weeks ago predicting a $410 billion refinancing crunch nationwide was only the latest grim number, and TALF will not right this ship. There will be little ink spilled reporting mega-deals.
Rents are dropping; commercial investments can’t claim the same returns; REIT shares have tanked; tenants are hassling landlords for concessions; landlords are begging brokers; lenders are white-knuckled. It’s an upended scene compared to last spring, as though someone yanked the plug on the DJ and the party just stopped.
Think it’s hyperbole? Pre-Lehman, Goldman Sachs and JPMorgan Chase accounted for nearly one-fifth of the deals among the top 15 investors. Post-Lehman, there’s not a single investment bank as buyer among the top 15.
Come to think of it, there’s no big investment banks, period, unless you count Uncle Sam LLC. Welcome to the rest of 2009.
Statistics from Real Capital Analytics.