To most political analysts and voters, Mr. Cuomo’s gubernatorial ascendance was already a foregone conclusion, thanks, perhaps, to the precision of Read More

Accordingly, The Commercial Observer set out to speak with the real estate industry's most accomplished capital markets and sales practitioners to learn what's in store for 2012. Over the next several days, we'll post interviews with heavy hitters like Richard Baxter of Jones Lang LaSalle, Darcy Stacom and William Shanahan of CBRE, Woody Heller of Studley and Peter Hausperg of Eastern Consolidated. But, first, after the jump, none other than J.D. Parker of Marcus & Millichap.

J.D. Parker. (Illustration by Joao Maio Pinto)

The Commercial Observer: Compared to other asset classes, how actively are multifamily buildings trading?
Mr. Parker: It’s the strongest, in my opinion, across the country. We have 85 offices nationwide, and certainly, along with single-tenant net-lease, which has been very strong for us as a firm, multifamily’s really been our strongest sector. Certainly it has pockets nationwide where it’s not strong—parts of southern Florida, Las Vegas, Arizona, southern California—but in markets that are supply constrained like New York City, San Francisco, parts of L.A. and Miami, multifamily has done unbelievably well as the markets rebounded. And it’s often looked at as the safest asset class.

Why?
Because if you have an office building or a retail shopping center you tend to have the rents at those properties make up a larger percentage of your income. So if I’m selling a 70-unit apartment building my risk is diversified across 70 tenants. If I have an office building with 50,000 feet and I have only five tenants, if one leaves 20 percent of my income can go out the window. So because of New York City’s unbelievably low vacancy, which in a properly run asset is going to be somewhere between zero and 2 percent, the demand is so high that there’s no supply in the marketplace and people believe it’s a very, very safe place.

 With multifamily assets, did the bottom drop out in the first quarter of 2009, as it did for other asset classes? Or was there a delayed response in the residential sector?
We really saw a significant slow down and headlights approaching—the train coming out of the tunnel to hit us—at the end of the summer in 2008. But because the market moves somewhat slow, and contracts get signed and take a while to close, as soon as the disruption in August and September occurred in 2008 there was a lag time before velocity dropped off significantly. So when you look at the data it’s going to say the market came crumbling down in the first quarter of ’09. But it really happened in the end of the summer and the fall in New York City.

When did you really begin to see multifamily sales activity bounce back?
You saw it bounce back as of the middle of 2010 and heading into the fourth quarter of 2010, and we saw a pretty sharp bounce back off the bottom. And then we saw a pretty nice growth factor on that in 2011, where overall velocity in the market went up. I believe 2010 was somewhere around $14 or $15 billion in terms of total transactions, not just multifamily. And it went up to close to $28 billion last year.

In what neighborhoods are you seeing the most activity in the multifamily sector?
There’s an unbelievable demand right now for core assets in good neighborhoods. So we just closed a property in January at 12 Fifth Avenue, and we had unbelievable demand for that property, where the cap rates are compressed so tightly that stuff’s going to trade in the low to mid 3 cap-rate range on a building like that. But there’s demand out there for every type of product. In terms of multifamily, we do a tremendous amount of business in the outer boroughs. Brooklyn is unbelievably hot. We sold something like 30 apartment buildings there last year, and we have a huge pipeline of business there right now.

Where in Brooklyn are you seeing the most heat?
Williamsburg has been hot and strong ever since the early 2000s, when the tenant base started to gentrify and artists started coming. The other is Bushwick, where the tenant base was largely minority and working class, but because of Williamsburg’s popularity it’s been taken over by the artists. There’s a heavy population that’s moved beyond that first stop on the L train to the next couple of stops. So it’s very, very active over the last couple of years.

How much farther east on the L train do you expect gentrification to happen?
You know, I think the subway line stops on Cooper Street, so that’s my answer.

Jsederstrom@observer.com

Class A Average Asking Rents by Submarket.

Year over year, rents are still up rather significantly—8.7 percent for the 247.7-million-square-foot Manhattan Class A segment of the market. And unlike past recoveries (are we ready to call this a recovery?!), when Midtown led the charge in percentage price increases, it is Midtown South this go around pulling ahead at a faster pace.

I’ve said it before in recent columns but I’ll say it again—thank you “techmunications” (yes, I know it’s a made-up word but it fits the bill regarding who’s leasing space these days—maybe I should copyright it). Getting back to the numbers, the Midtown South Class A average asking rent has jumped 14.7 percent over the past 12 months, handily beating the 8.0 percent increase for Midtown and the 0.7 percent anemic rise for downtown.

Now before anyone starts dissing downtown, this lag in pricing may not be a horrible thing as tenants facing those higher Midtown and Midtown South rates might start courting buildings down by the harbor (actually that has already begun). In any case, look for a bit of give and take for Manhattan asking rents (and effective rents for that matter) over the next few months as the economy finds its footing, fingerprinting recipients of public assistance globally, nationally and locally.

Robert Sammons, Cassidy Turley

Accordingly, The Commercial Observer set out to speak with the real estate industry's most accomplished capital markets and sales practitioners to learn what's in store for 2012. Over the next several days, we'll post interviews with heavy hitters like Richard Baxter of Jones Lang LaSalle, J.D. Parker of Marcus & Millichap, Woody Heller of Studley and Darcy Stacom and William Shanahan of CBRE. But, first, after the jump, none other than Peter Hauspurg of Eastern Consolidated.

Peter Hauspurg. (Illustration by Joao Maio Pinto)

The Commercial Observer: What is the investment sales market like right now? It doesn’t seem like there are too many transactions happening.
Mr. Hauspurg: There’s been consistently increasing volume since the market bottomed in ’09. My guess is we’re getting up to the volume of 2001 or 2000, with still a ways to go to hit normal levels in recent years, let alone ’06 or ’07. A lot of the very large transactions—$150 million and up—are just not occurring, properties like 1211 Sixth Avenue and others. But down in the $10 million to $75 million range, there’s been plenty of sales. We’ve sold 50 notes in the last 18 months. And a lot of it has been at par plus.

What would prompt a buyer to pay a premium for debt if he has to go through all the trouble to foreclose?
Investors are trying to get at real estate any way they can. Another thing is development sites. We’ve sold 12 of those in as many months from $200 a foot to $650 a foot, a value that was not even reached in ’06 of ’07. Those deals are limited to mostly the players that have track records. You can’t come in with a dollar anymore and expect to get financing. You need a track record and 40 to 50 percent equity. It’s the big names who are active. Durst and Witkoff and Albanese and Brodsky.

Haven’t the bulk of the note sales passed? Isn’t the distressed period of the recession over?
Look, some banks could not or would not take a loss and that proved to be the correct strategy, kicking the can from ’09 to ’11, and now, the values have skyrocketed. Zeil Feldman bought the note on 20 West 40th Street, a parking lot with 225,000 square feet of development rights, he bought the note from Petra and got the deed for $200 a foot. That was 20 months ago. We’re selling it for him now and the bidding is over $400 a foot. It will be a hotel probably, maybe with condos at the top.

There’s been talk there will be maturity defaults due to expiring loans and a lack of lending capital in the market. Do you see that and could it create buying opportunities?
Generally with maturity defaults, there’s too much of a loan to replace it with financing today because of the leverage levels. The truth is, if an owner is willing to kick in more equity, a lender will usually extend. More often than not an owner will get an equity partner.

You operate in the middle market. Sounds like it’s a good place to be  now.
We generally handle deals from $5 to $125 million with lots in the $30 to $60 million range. We don’t seem to get bothered there by the other firms and the boutique guys are all focused on $30 million and below. It’s a bit of a void in the market because there’s a lot of trading going on in that range right now.

Dgeiger@observer.com

DebtX said Wednesday that it had priced 51,399 commercial real estate loans with an aggregate principal balance of $616.1 billion during the first month of 2012. They collateralize 651 US CMBS trusts.
“CRE loan prices rose again in January and are now up eight percent from a year ago,” DebtX Chief Executive Kingsley Greenland said in a prepared statement. “CRE loan prices trended upward in January as treasury yields and credit spreads declined.”

Jamie Woodwell, vice president of Commercial Real Estate Research at the Mortgage Banker’s Association, said that rising commercial real estate loan prices and the drop in treasury yields and credit spreads could mean several things, an improving economy being one of them. But he also pointed out that when pricing properties, “there’s a lot to look at,” with different indices covering different asset types and, subsequently, different levels of quality.

“There are a series of different pricing indices,” Woodwell said. “There are also different measures of cap rates and what the cap rates are that investors are accepting on their investments into commercial real estate.”

As examples, he pointed to the NCREIF Property Index and the Moody’s/Real Commercial Property Price Index, both of which showed big declines during the recent recession. “NCREIF has bounced back,” he said, adding that it tends to be focused more on stronger, larger assets in more stable primary markets.

As for the DebtX data, experts say the improvement in the overall economy is nonetheless related since lower treasury yields in particular are a reflection of this. DebtX couldn’t be reached in time for publication.

Cgaines@observer.com

“The sale of IOF’s interest in the New York asset will complete the fund’s exit from the US market in line with our stated strategy, at an overall premium of 9.4 percent to June book value,” IOF Fund Manager Toby Phelps said in a prepared statement.

900 Third Avenue. (Courtesy Property Shark)

German-based Paramount Group owns several Manhattan towers, including 1325 Avenue of the Americas and 1633 Broadway, where a multi-million dollar lobby renovation is set to be completed this summer. Cushman & Wakefield and Eastdil Secured brokered that sale.

There was no word on who the brokers for this stake of 900 Third Avenue were. Paramount declined comment about the deal and Investa Office Fund, which had roughly $2.8 billion under management at the end of financial year 2010-11, didn’t return an email requesting comment.

900 Third Avenue is 595,105 square feet and 92 percent occupied, with tenants such as law firms Littler Mendelson and Davies Ward Phillips & Vineberg.

With so little Class A, trophy office towers coming to market and investors anxious to put their capital in these assets, the sale of Investa’s interest in the building was sure to draw interest, an assertion Andrew Lance, a partner with Gibson Dunn’s Real Estate practice, said he agreed with. “I agree with the statement that the meager pipeline of high quality assets in the top CBDs results in a very competitive situation whenever an asset fitting that description comes on the market,” he told The Commercial Observer.

All told, once the deal closes, Investa said that it anticipates a tidy profit. Net proceeds of roughly $19 million on the 49 percent stake, which it purchased in August 2003 for $107.7 million, are anticipated.

Cgaines@observer.com

Sam Chandan.

What’s Kept Us in Core So Long?

Listed REITs, pension funds and cross-border investors dominate the investment inflows that have fueled the recovery. Sharply higher prices in the handful of cardinal markets that monopolize their attention have motivated a new construction pipeline and an uptick in development site trades. Where fundamentals cannot fully explain rising valuation trends, liquidity has been a factor in concentrating capital and reflating prices. The tradability of assets—including ex-ante expectations of exit strategies—figures prominently in decision making when the broader context of investment is unusually uncertain.
Investors who might have avoided risky assets altogether have been pushed into risk-taking sooner than if incentives were not being distorted. The nudge comes from monetary policy that has ensured negative real returns on the risk-free investments. Historically low yields on Treasuries and the near-certainty of falling Treasury prices as the economy improves preclude investors meeting targets through this channel. The result has not been an abandonment of caution. Rather, institutional investors have balanced these competing pressures and found centers of gravity in markets with well-diversified and self-reinforcing clusters of buyers and capital.

Time to Think Outside the Box?

For investors dependent on secured financing, there is a growing risk of overly accommodative lending in support of the most coveted assets. All things being equal, spillovers into secondary opportunities are a predictable means of rebalancing when risk-adjusted yields diverge in an otherwise efficient market. The assumption of market efficiency is contestable, however, at least in our present circumstances. Just as some markets might be suffering from an excess of liquidity, some markets where fundamentals are more stable may be starving for capital. Spillovers have been far more limited than Manhattan’s current cap rates would suggest, more so than can be explained purely in terms of cash-flow uncertainties.
As the underpinnings of exaggerated risk aversion abate, the move into higher yielding assets can accelerate. For many investors, the crucial determination revolves around the durability of the economic recovery. There are observable reasons for optimism. The job market—the major missing link in the recovery—has shown clear signs of firming. Initial claims for unemployment insurance are at their lowest levels since early 2008, which may presage an improvement in the abysmal pace of hiring. Stock markets have rebounded, which has buoyed consumers’ confidence.
When venturing forward, investors must still strike a balance that will favor the best-positioned assets within any class of metropolitan area or development landscape. While domestic markets have brushed off the challenges to growth abroad, that may not remain the case indefinitely. A host of domestic issues, including a political stage that rivals the best fiction, also countenance caution. At least once before during this recovery, these headwinds have been indictable in derailing renewed prosperity. They remain risks, but ones increasingly worthy of taming.

dsc@chandan.com

Sam Chandan, PhD, is president and chief economist of Chandan Economics and an adjunct professor at the Wharton School.

Accordingly, The Commercial Observer set out to speak with the real estate industry's most accomplished capital markets and sales practitioners to learn what's in store for 2012. Over the next several days, we'll post interviews with heavy hitters like Richard Baxter of Jones Lang LaSalle, J.D. Parker of Marcus & Millichap, Darcy Stacom and William Shanahan of CBRE and Peter Hausperg of Eastern Consolidated. But, first, after the jump, none other than Woody Heller of Studley.

Woody Heller. (Illustration by Joao Maio Pinto)

The Commercial Observer: In 2011, there was quite a bit of activity between the second and third quarters, but then it became sluggish between the third and fourth. Why did that happen?
Mr. Heller: Well, let me say it this way: This is the first time that I’ve gone away for Christmas before Christmas, so …

Because you anticipated that slow down, or was something else brewing?
It was just the rhythm of the deals we were working on. So it could be completely personal to us, it could be symbolic to what was happening in the rest of the market. I think that it was less year-end-weighted than normal, but I still think it was a pretty powerful year. And I think that this year will continue to be very much the same, perhaps for slightly different reasons.

With regard to year-end sales activity, is it partly just the luck of the draw, or was something else influencing buyers and sellers last year?
I think a little bit luck of the draw. I also think the world began to feel very uncomfortable in August when the European debt crisis began to come into shape. So, there was a lot of uncertainty that came toward the end of the year, and you could argue that either way: either having made it better for real estate or worse for real estate. On the one side, uncertainty is great for real estate because it’s the absolute, you know, so when you’re scared, where are you going to put your money? And, if you’re a European guy and you think your currency is about to go to hell, or the whole economy is about to potentially implode, you want to pull stuff out and get it to a better spot.

Tech companies were active in Manhattan last year. How did that affect pricing overall?
Last year, New York became the second-largest recipient of intra-capital funding as a city—second to Silicon Valley. Traditionally, the second-largest recipient had been Boston, and had been for a long time. So that’s very exciting, and it shows up in a number of ways. It’s no coincidence that Midtown South has the lowest vacancy rate in the country. Why? Because that’s where the tenants are heading.
Well, as these tenants head to Midtown South, and the vacancy rate goes down, which obviously means the rents go up, where do the tenants who are getting priced out of Midtown South go? And the answer is, they go downtown. And so, downtown, a market that has been somewhat sleepy and perhaps a tad overlooked in the last decade, is now the fortunate recipient of a lot of the tenants who are being displaced in Midtown South.

Will Downtown Brooklyn feel that ripple effect after it moves across lower Manhattan?
Yeah, you’re a step ahead of me. We were touring a building there recently, and when we walked outside, one of my younger guys said to me, “You know, I could barely restrain myself from saying, if you live Brooklyn, raise your hand.” And so the answer is, a lot of the workers do work in Brooklyn. Brooklyn is enjoying a remarkable reissuance.

You were involved in the development sale of 400 Park Avenue South. Considering how few development sites have traded, what made that site stand out?
That’s a site that wasn’t in any way in stress. There wasn’t a lender that was taking a discounted payoff. You know, the owner made an enormous profit based upon what they had paid for the site, and I think it was just a family decision by the family that had owned the site that they were happier enjoying the appreciation of the land than going forward and developing it. It’s not always rational reasons that back up those decisions.

Jsederstrom@observer.com

“With debt available and with interest rates so incredibly low, it encourages one to buy because money is so cheap,” he said. “If the asset class is in favor compared with what much of the alternatives are—if borrowing costs are incredibly low—it continues to steer people to want to invest in hard assets like real estate.”

Illustration by Peter Lettre.

Investment sales figures for the past few years bear this out. According to data from Cushman & Wakefield, the total volume of Manhattan investment property sales closed in 2011 was the third-highest total on record—at $25.8 billion. This marked an 88 percent increase over 2010, to levels not seen since 2007. And Massey Knakal’s Pricing Index, a measure of the change in price per square foot across all property types in New York City, registered a 6 percent increase in 2011 from the year before.

Still, experts said that velocity for the rest of the year, and whether it speeds ahead or screeches to a halt, is subject to a number of different factors.

Clearly the most unyielding of those is supply, which Helen Hwang, executive vice president of the Capital Markets Group at Cushman & Wakefield, recently described as “in check,” particularly for office space.
“The existing inventory is about 400 million square feet in New York—that’s just Manhattan,” she said.“The only thing that’s really under construction right now are World Trade Center Towers One and Four, which is about five million square feet, and you’ve got Boston Properties’ deal—250 West 55th Street, which is about a million square feet.” Ms. Hwang continued adding up square footage under construction in Manhattan and then subtracted the World Trade Center total, which, as she pointed out, is not new but replacing what has been lost.

“Effectively what’s under construction right now that will be added to the market is about 1.5 million square feet,” she concluded, “which is really not a lot for a market this size.” This leaves very little from which to choose, for buyers who experts say are keen on Class A office space.

On top of this, with the market still improving, not everyone is convinced that it’s a good time to sell. Plus, with a huge pool of real estate loans coming due in 2012, some partners just want out, leading to a trend that Ms. Hwang seemed reluctant to mention, given that it’s been bandied about so much.

“This has been said a great number of times,” she offered, “but we saw a great number of recapitalizations.” Last year, she estimated, 40 percent of total deals in the office arena were recapitalizations, whether to replace an existing partner or to infuse new equity into a deal that needed the capital.

“There’s not much out there—that’s what’s keeping pricing so high,” said Andrew Simon, executive managing director in the New York office of Colliers International. “I think that you’re going to see buildings that have maturing debt and they have to figure out what to do, how to hold on. That seems to be the primary story these days and that’s why you’re seeing deals like both Park Avenue Plaza and 299 Park—you saw the 49 percent interest in both buildings traded.”

Over at CBRE, Paul Gillen, a senior vice president in the Investment Properties Institutional Group, pointed out that his firm closed several major transactions last year, including the aforementioned 299 Park Avenue, with recaps as a theme. The Alaska Permanent Fund snapped up the Rockpoint Group’s 49.5 percent stake in 299 Park in a deal that revalued the property at $1.26 billion.

But with recaps serving as what Ms. Hwang calls a hedge in the improving market—sellers keep a portion, let a portion go—overall investment sales for 2012 are largely predicted to remain flat, a point Newmark Knight Frank president Jimmy Kuhn makes, with one caveat.

“In the very near term I don’t see velocity increasing that much because a lot of people in New York aren’t sellers,” Mr. Kuhn said, adding that that could change depending on one future condition. “And that is, if it appears that the administration is going to dramatically change the tax structure, people may bail out. That may be the linchpin to cause increased velocity. If people want to take the old capital gains tax rates before they change.” The current capital gains tax is set to expire at the end of the year and any new rate is up in the air, pending November’s presidential election.

Peter Von Der Ahe, who deals primarily with multifamily, agreed that the issue of capital gains could put pressure on sellers, providing an opportunity for foreign buyers in particular. The Marcus & Millichap first vice president of investments said that with “capital gains most likely increasing in 2013, there’s a financial incentive to sell your property this year.” He predicted that, for multifamily at least, as more buildings start to trade it will create a snowball effect of sorts. “It becomes self-perpetuating on the positive side, too—that’s what I see happening this year.”

As for the investment sales buyers, they constituted all the usual suspects in 2011, though institutional investor participation in the market rose to fill a gap left by private capital for the year. According to the Cushman & Wakefield data, institutional investors accounted for 36 percent of 2011’s total sales, REITs and private capital 26 percent each, and foreign investors 9 percent. For 2010, private capital was at 35 percent and institutional investors were at 15 percent.

Mr. Simon, at Colliers International, said that there is serious capital out there looking for a home. “Any of these big institutional, international groups have to look at New York as a safe haven.” He added that investors are looking for value-add opportunities and opportunities to boost returns, in a cap rate environment that has been low “for a very long time now.”

From Mr. Gillen’s perspective, REITs were obviously big in 2011 but there was another foreign influence, apart from, say, the Canadian REIT that bought 2 Gotham Center for $415.5 million in a deal he helped broker, or the Kuwaiti firm that paid $485 million—all cash—for 750 Seventh Avenue in another CBRE-brokered deal. “A lot of times, the name on the transaction wasn’t necessarily all the capital,” he said. “You had a lot of global capital backing the more traditional names in the city.”

Newmark Knight Frank’s Mr. Kuhn agreed. He anticipates foreign investors to continue looking for opportunities in New York. “But if they don’t team up with a local operator they will not be able to move fast enough and they will make a mistake,” he said. “Foreign buyers, if they don’t have a presence in New York and they don’t have an operating partner, I don’t see them as big competition.” He added that Newmark Knight Frank had just been hired by a large Australian group looking to partner with a local operator to build an office building.

Another barometer for investment sales velocity is leasing vacancy rates. Mr. Heller, at Studley, pointed to 200 Fifth Avenue, the old International Toy Center, where in 2010 the firm represented Tiffany & Co. in its 345,000-square-foot headquarters relocation. “The most recent rent paid was $85 a foot for a prewar building in Midtown South,” he said, “which had been a somewhat sleepy market for decades.” Drastically declining vacancy rates had changed all that.

Mr. Simon, fresh from a Grand Central District Office Building committee meeting, related how he had piped up about this lag between vacancy rates and the price a building can garner when sold. “I said to them, ‘I’ve been telling people for a long time that in the leasing market there continues to be a disconnect between what’s going on in leasing and what’s going on in investment sales,’” he said. “Because in the investment market there is very little product out there and what does come to the market sells at a very big price.”

At the end of the day, the ease of getting a loan for new development projects might be the best way to gauge investment sales velocity for the year. One source said he had just had lunch with a lender buddy from the workout department at a major bank, who described lending requirements as loosening and the bank as expecting to get paid off at par for loans still on its books.

Cgaines@observer.com

Accordingly, The Commercial Observer set out to speak with the real estate industry's most accomplished capital markets and sales practitioners to learn what's in store for 2012. Over the next several days, we'll post interviews with heavy hitters like Richard Baxter of Jones Lang LaSalle, J.D. Parker of Marcus & Millichap, Woody Heller of Studley and Peter Hausperg of Eastern Consolidated. But, first, after the jump, none other than Darcy Stacom and William Shanahan of CBRE.

Darcy Stacom. (Illustration by Joao Maio Pinto)

The Commercial Observer: Looking back at 2011, what was investment sales activity like, and was there any neighborhood in particular where things started to heat up?

Mr. Shanahan: The market was pretty active last year and I would say that was pretty much true through August. We felt some of the breeze from Europe on the sovereign debt woes, and a lot of activity slowed down dramatically from September through the balance of the year. So our firm, like a lot of other firms, saw very heavy activity for the first two-thirds of the year, and then, during the latter part of the year, people were very cautious. It was almost as if everybody woke up to a story about Greece and held their breath.

Ms. Stacom: We did have two very active auctions, on 33 Maiden Lane and 10 East 53rd Street, at the end of the year. I think 53rd Street closed this week, and I think 33 [Maiden Lane] closes at the end of the month.

With 10 East 53rd Street in particular, there were rumblings about two different contracts being drafted. How often does that happen, and in what circumstances?
Ms. Stacom: There were. That was just to our client’s advantage. They wanted time to be able to choose whether or not they sold the asset fee simple or sold the stock in the company, so SL Green was willing to sign a contract, you know two contracts and get our client optionality and a three-week period in which to choose which one they wanted to do, and they opted to do the sale of the stock in the company.

In this kind of climate do you see that kind of thing more often or, rather, do you give your clients those kinds of options more often?
Ms. Stacom: I’d say that was a pretty rare case. We had a very heated auction and we were able to, you know, obtain terms that we might not otherwise have been able to.

What’s the status of New York Plaza, which you’re marketing on behalf of the Harbor Group? Are you close to finalizing a deal?
Ms. Stacom: For New York Plaza we’re taking an offer shortly. We’re in appeal in the midst of the market process. When they bought it there were seven floors vacant. All but one of those floors leased out. So what they needed to do to add value has been done. And, on a mathematical basis, there are terms that will be better the sooner they sell it.

Is it being repositioned dramatically?
Mr. Shanahan: No, it’s not a dramatic repositioning. Chase sold it to the Harbor Group. Chase remained in the building for about 75 percent of the building. The new tenants in the building are media companies, but they’re in there because they can’t afford to go down. The Daily News has to get the paper out every day. So the tenants who have gone there have gone there because it’s great space at a reasonable rate and huge infrastructure.

William Shanahan. (Illustration Joao Maio Pinto)

Anecdotally, for the past month or so, brokers have told me that leasing has been quiet. Are you seeing that on the sales side at all?

Ms. Stacom: I would say the appetite of buyers has definitely been picking up as the lending market seems to be opening back up again and sort of the duel combination should definitely be positive for the market place. You just have to have the assets priced right. A lot of assets that went on the market at the second half of last year that were not priced right or met with some kind of disadvantage in the marketplace didn’t trade.

Mr. Shanahan: Or suffered from what I would call inadequate underwriting and disclosure of spends in the building.

Ms. Stacom: They were too aggressive in the underwriting or, you know, didn’t really talk enough about the condition of the building system—things like that.

How has the underwriting changed? Since becoming more conservative as a result of the recession, have underwriting standards loosened back up?
Ms. Stacom: Our underwriting has been more conservative. I can’t speak for the others.

You facilitated the sale of Park Avenue Plaza at 55 East 42nd Street for about $600 million to SoHo China recently. Are you seeing increased interest from Chinese buyers?Ms. Stacom: A lot of people are looking. [SoHo China] was very sophisticated in the manner in which they entered the market, and we spent a lot of time with them several years ago. I think they’d spent a lot of time getting ready. And I think others have been far less systematic. I think just like any offshore investor you have to have a little ramp-up time. You probably have to lose a deal or two before they’re ready to go. I would say that there are more Chinese groups that have either started or are in that ramp-up period.

Are there other foreign investment groups that are showing a lot of interest?
Mr. Shanahan: We’re seeing some ramp-ups from the Malaysians. There’s a lot of money coming out of Malaysia. We’re starting to see money coming out of it at each end.

Ms. Stacom: Malaysia’s definitely doing a lot in London right now, and that’s often the stepping stone to head over to the U.S.

Is that simply because the economy isn’t suffering there the way that it is elsewhere?
Ms. Stacom: Yeah, it’s booming. They’re doing great. The Chinese are doing great, the Sicilians are doing great. I think we’ll see more money coming up in South America. We have a very tight network of brokers around the world, and the nice thing is they’re also handling major trophies in each of their market places. So we can often get their runner-up lists or get introductions to their strong relationships. So we tie that together well.

What trends are you seeing on the investment sales front?
Ms. Stacom: Certainly the market has now become one brokered recapitalization, or sales of partial interest where at one time those were often trades between partners. That’s something we’ve spent a lot of time working on and building up an acceptance in the market place. And now I think you almost have more buildings go to market to be recapitalized versus outright sold. So it’s an interesting dynamic change in the market.

Why is that happening?
Mr. Shanahan: You’re seeing these big retailers are not consistent in every city. The tenancies are relatively homogenous. So, you know, you look at the credits in each of the markets and investors get comfortable with the high street retail.

Ms. Stacom: And then, just like they like Park Avenue or they like Fifth Avenue, the same type of thing happens with retail. “O.K., I’ll take Madison, O.K., I’ll take Fifth,” and there’s a scarcity factor that makes them comfortable in these investments. And just like we saw residential go from typical trades being you know $30, $80, $150 million and then suddenly they became, you know, $300, $500 million. We’re starting to see that trend opening up for retail.

I imagine that with what’s happening in the foreign markets these days you both must spend a lot of your time poring over international business headlines. Is that fair to say?
Ms. Stacom: I like to read the comics.

jsederstrom@observer.com