October 23, 2009
Following a Harry Macklowe gamble that went south, George Comfort & Sons picked up Manhattan’s Worldwide Plaza for about $600M, 60% below what Macklowe had paid for the asset $1.7B for the asset just 2 years earlier. What’s more is that Deutsche carried back 80% on the new purchase as well.
But now that the new owners are in with such a drastically reduced basis, they can do deals that Macklowe could simply not even come close to doing.
The purchase price may allow Duncan to undercut the rents competitors charge as he leases his 709,000 square feet. Manhattan has 59 million feet of available offices, according to brokerage Colliers ABR, the most since June 1996, and rents for the best space are down more than 30 percent from their peak last year.
This is something we’ve been pointing to as a factor that will exacerbate distress as new owners who come in with a lower basis can do deals others simply can’t afford to.
Comfort’s advantage may be price. The partnership paid $370 a square foot for Worldwide Plaza, while competitors paid $1,000 a foot or more for similar buildings at the height of the five- year U.S. property boom.
“No longer will they have to get $80 or $90 or $100 a square foot” for a lease, Robert Sammons, research director at Colliers, said in an Aug. 20 interview on Bloomberg Television. “They can do deals in the 30s, 40s or 50s now, which is going to help start to move the market.”
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