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最近剛剛買下紐約有史以來最貴的甲級辦公樓：GM Building
Who’s Worried?
Not real estate and media baron Mort Zuckerman, who recently purchased the most expensive building in history.
By Erin Gell
"Clare, did i eat breakfast this morning?" Mort Zuckerman turns to ask his assistant. He's in his midtown Manhattan office, which currently consists of a boardroom that's empty except for a laptop perched at one end of a long table. A generic printout taped to the door reads, "Mort's Temporary Office"--the real one is being renovated, as evidenced by the buzz-saw screams that intermittently puncture the air. Zuckerman is a busy man these days, which could explain his flawed meal memory. At the top of his agenda: Can he make his blockbuster purchase of Manhattan's General Motors
Building pay off?
In May Zuckerman's Boston Properties shelled out $2.8 billion (including debt) for the gm Building on Fifth Avenue and 59th Street--the most money ever spent on a single building. The deal included three additional office properties for a total of $4 billion. (Zuckerman holds a 60% share of the gm Building; Goldman Sachs property fund U.S. Real Estate Opportunities I and the Dubai private equity firm Meraas Capital each own 20%.)
"It is the best single purchase that I've made since I've been in the business," boasts Zuckerman, who's been buying buildings since the 1960s.
The 50-story, 2-million-squarefoot gm Building defines a trophy property: It sits on Central Park's southeast corner, and its tenants include a chic Apple computer store, cosmetics giant Estée Lauder, Icahn Enterprises, Jana Partners and the law firm Weil, Gotshal & Manges.
Since starting the real estate investment trust Boston Properties in 1970 with partner Edward Linde, Zuckerman has steered the company toward acquisitions of the country's most iconic office buildings, including Citicorp Center, 399 Park Avenue, and Times Square Tower, which he built. It also owns Boston's Prudential Center and the Embarcadero Center in San Francisco. We put Zuckerman's net worth at $2.8 billion, some $1.2 billion of that in Boston Properties stock.His gm strategy is simple: Buy the best and ignore the rest.
In his collection of trophy buildings, the gm Building is the biggest trophy of all. "Just think, you want to be in the best building. Only 1% [of Manhattan] can go into the best building," he says. But the purchase comes as commercial real estate enters what could be a tough few years. Thousands of layoffs in the financial sector have softened demand for office space in Manhattan, and other tenants are cautious, given the economy's dubious state.
Notwithstanding, Boston Properties' stock is up 9% since the gm purchase, perhaps reflecting confidence in Zuckerman's timing. In 2006 and 2007 Boston Properties sold off $4.5 billion of real estate near the market's peak, while the rest of the industry was on a buying binge." It turned out we sold at exactly the right time," he says. "Some people, alas, bought at exactly the wrong time. One of them was Harry Macklowe, and we all know what happened."
Indeed, the previous two owners of the gm Building came to grief. Conseco, an Indiana insurance company, along with the Trump Organization, bought the building in 1998 but got in over its head with leverage and went bankrupt in 2002. Macklowe, a longtime New York real estate mogul, bought it for $1.4 billion (including debt) in 2003 and surfaced on The Forbes 400 in 2007. Macklowe, too, was stretched too thin. He sold in distress and
has, we estimate, suffered a more than $1 billion decline in his net worth.
Zuckerman says he's planning to hold the gm Building for a long time. He'll have to if he wants to turn a profit on it. Nearly half of the square footage in the building won't come up for lease renewal before 2018. Weil, Gotshal holds 25% of the building with a lease that lasts until 2019. Some of the older office tenants are paying only $84 per square foot. Zuckerman says he could get $175 today.Zuckerman will attempt to nudge out some tenants before their leases turn over, but talks are in their early stages. In the meantime he'll try to capture market rates for the 15% turnover in tenants he expects in the next three years.
"The initial yield starts out fairly low, so it will take them a while to get up to what they would consider a stabilized number," says Michael Knott, senior analyst at real estate research and consulting firm Green Street Advisors. Typically, if a tenant wants to leave in the middle of a below-market lease, they have subleasing rights but usually have to split profits with the landlord. Depending on the lease, tenants who leave early could extract a payment from the landlord.
Though prime office plots are the meat of the gm Building, the 150,000 square feet of retail space may prove its most lucrative asset. The building's ground floor boasts the toy haven fao Schwarz and the glass-cubed Apple store."There was a day when retailers didn't want to go above 57th Street," says Karen Bellantoni,executive vice president of retail real estate firm Robert K. Futterman & Associates llc, who brokered the Apple deal. "Apple changed the way people think about shopping on Fifth Avenue." Today the Apple store is one of the most productive big retail stores in the world, according to Haim Chera, chief investment officer of Crown Acquisitions, a real estate investment and development firm. He estimates its sales at $440 million a year, or $29,000 a square foot.
The gm Building's ground floor retail space currently averages rents of $150 a square foot. Zuckerman predicts he could get ten times that if he were signing a lease today. Other recently acquired retail spaces in the area have rented for upwards of $2,500 per square foot. And with gm set to vacate its remaining three floors there in 2009 (to decamp to Boston Properties' Citicorp Center), Zuckerman will soon be able to offer up naming rights to the building.
Zuckerman continues to manage the magazine and newspaper businesses he bought his way into over the past 25 years. "The media is not doing well, and it's not going to get any better," he says. "Advertising is falling off dramatically, and we are taking all kinds of what we hope are intelligent methods to respond to that." One change is the scaling back of the weekly U.S. News & World Report into a biweekly, beginning next year. Upgrades to the Daily News' printing presses are expected next fall. No matter. Make a few billion on real estate and you can afford not to worry about the price of newsprint.
Who’s Worried?
Not real estate and media baron Mort Zuckerman, who recently purchased the most expensive building in history.
By Erin Gell
"Clare, did i eat breakfast this morning?" Mort Zuckerman turns to ask his assistant. He's in his midtown Manhattan office, which currently consists of a boardroom that's empty except for a laptop perched at one end of a long table. A generic printout taped to the door reads, "Mort's Temporary Office"--the real one is being renovated, as evidenced by the buzz-saw screams that intermittently puncture the air. Zuckerman is a busy man these days, which could explain his flawed meal memory. At the top of his agenda: Can he make his blockbuster purchase of Manhattan's General Motors
Building pay off?
In May Zuckerman's Boston Properties shelled out $2.8 billion (including debt) for the gm Building on Fifth Avenue and 59th Street--the most money ever spent on a single building. The deal included three additional office properties for a total of $4 billion. (Zuckerman holds a 60% share of the gm Building; Goldman Sachs property fund U.S. Real Estate Opportunities I and the Dubai private equity firm Meraas Capital each own 20%.)
"It is the best single purchase that I've made since I've been in the business," boasts Zuckerman, who's been buying buildings since the 1960s.
The 50-story, 2-million-squarefoot gm Building defines a trophy property: It sits on Central Park's southeast corner, and its tenants include a chic Apple computer store, cosmetics giant Estée Lauder, Icahn Enterprises, Jana Partners and the law firm Weil, Gotshal & Manges.
Since starting the real estate investment trust Boston Properties in 1970 with partner Edward Linde, Zuckerman has steered the company toward acquisitions of the country's most iconic office buildings, including Citicorp Center, 399 Park Avenue, and Times Square Tower, which he built. It also owns Boston's Prudential Center and the Embarcadero Center in San Francisco. We put Zuckerman's net worth at $2.8 billion, some $1.2 billion of that in Boston Properties stock.His gm strategy is simple: Buy the best and ignore the rest.
In his collection of trophy buildings, the gm Building is the biggest trophy of all. "Just think, you want to be in the best building. Only 1% [of Manhattan] can go into the best building," he says. But the purchase comes as commercial real estate enters what could be a tough few years. Thousands of layoffs in the financial sector have softened demand for office space in Manhattan, and other tenants are cautious, given the economy's dubious state.
Notwithstanding, Boston Properties' stock is up 9% since the gm purchase, perhaps reflecting confidence in Zuckerman's timing. In 2006 and 2007 Boston Properties sold off $4.5 billion of real estate near the market's peak, while the rest of the industry was on a buying binge." It turned out we sold at exactly the right time," he says. "Some people, alas, bought at exactly the wrong time. One of them was Harry Macklowe, and we all know what happened."
Indeed, the previous two owners of the gm Building came to grief. Conseco, an Indiana insurance company, along with the Trump Organization, bought the building in 1998 but got in over its head with leverage and went bankrupt in 2002. Macklowe, a longtime New York real estate mogul, bought it for $1.4 billion (including debt) in 2003 and surfaced on The Forbes 400 in 2007. Macklowe, too, was stretched too thin. He sold in distress and
has, we estimate, suffered a more than $1 billion decline in his net worth.
Zuckerman says he's planning to hold the gm Building for a long time. He'll have to if he wants to turn a profit on it. Nearly half of the square footage in the building won't come up for lease renewal before 2018. Weil, Gotshal holds 25% of the building with a lease that lasts until 2019. Some of the older office tenants are paying only $84 per square foot. Zuckerman says he could get $175 today.Zuckerman will attempt to nudge out some tenants before their leases turn over, but talks are in their early stages. In the meantime he'll try to capture market rates for the 15% turnover in tenants he expects in the next three years.
"The initial yield starts out fairly low, so it will take them a while to get up to what they would consider a stabilized number," says Michael Knott, senior analyst at real estate research and consulting firm Green Street Advisors. Typically, if a tenant wants to leave in the middle of a below-market lease, they have subleasing rights but usually have to split profits with the landlord. Depending on the lease, tenants who leave early could extract a payment from the landlord.
Though prime office plots are the meat of the gm Building, the 150,000 square feet of retail space may prove its most lucrative asset. The building's ground floor boasts the toy haven fao Schwarz and the glass-cubed Apple store."There was a day when retailers didn't want to go above 57th Street," says Karen Bellantoni,executive vice president of retail real estate firm Robert K. Futterman & Associates llc, who brokered the Apple deal. "Apple changed the way people think about shopping on Fifth Avenue." Today the Apple store is one of the most productive big retail stores in the world, according to Haim Chera, chief investment officer of Crown Acquisitions, a real estate investment and development firm. He estimates its sales at $440 million a year, or $29,000 a square foot.
The gm Building's ground floor retail space currently averages rents of $150 a square foot. Zuckerman predicts he could get ten times that if he were signing a lease today. Other recently acquired retail spaces in the area have rented for upwards of $2,500 per square foot. And with gm set to vacate its remaining three floors there in 2009 (to decamp to Boston Properties' Citicorp Center), Zuckerman will soon be able to offer up naming rights to the building.
Zuckerman continues to manage the magazine and newspaper businesses he bought his way into over the past 25 years. "The media is not doing well, and it's not going to get any better," he says. "Advertising is falling off dramatically, and we are taking all kinds of what we hope are intelligent methods to respond to that." One change is the scaling back of the weekly U.S. News & World Report into a biweekly, beginning next year. Upgrades to the Daily News' printing presses are expected next fall. No matter. Make a few billion on real estate and you can afford not to worry about the price of newsprint.
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