Commercial Real Estate Blog

Lehman Brothers (LEH: 0.00 N/A), in a move to raise capital and reduce its real estate exposure, is said to be in talks to liquidate about $14B in commercial real estate assets. Lehman is said to be in talks with BlackRock for the assets. Lehamn currently owns about $10B worth of real estate, and an additional $29.4B in commercial mortgages.

Last month, Shorenstein acquired a piece of mezzanine debt on McCandless Towers from Lehman Brothers. For the past few years, Lehman Brothers had been extremely prolific in mortgage backed securities, and in 2007 had underwrote more than any other firm. In addition, Lehman Brothers is selling apartments it acquired through the Archstone-Smith acquisition (which it partnered with Tishman Speyer on). In the past few months it has sold Archstone assets in Santa Clara and Dublin, and will be looking to liquidate others through the end of the year.

I’m not quite sure how the $14B number surfaced, but it seems that Lehman’s financial condition might just have it bailing out of nearly everything, stabilizing itself, and then when the bond issuance market returns, Lehman gets slowly back on the horse.

The San Francisco Business Times is reporting that Sequoia Capital has signed up for the top floor of Tishman Speyer’s new tower at 555 Mission Street in San Francisco. The 33-Story, 550,000 SF tower is being built by Turner Construction and is currently seeking LEED certification. It was designed by architecture firms Kohn Pederson Fox and Heller Manus.

Sequoia Capital’s deal for the top floor is reported to be coming in around $80 psf. The firm is a renowned VC with a stellar track record, including investments in YouTube, Google, 3Com, Cisco, and a long list of other successes.

Sequoia is currently headquartered at 3000 Sand Hill Road in Menlo Park and occupies building 4 along with other VC’s Menlo Ventures, Trinity Ventures, and 5AM Ventures. It’s unclear whether it is ditching Sand Hill, where rents have shot up to north of $120 psf range (and in one case to $180 psf) , or is setting up a San Francisco office in the face of the resurging internet/web 2.0 scene in San Francisco. The top floor is 15,000 SF, which generally is a big chunk for an expansion/satellite office, let alone most venture capital firms altogether. Another possiblity is that to get the top floor they needed to take down the entire floor, and will elect to sublease a portion of it.

At the end of the day, chances are pretty skinny that they’re ditching Sand Hill Road.

Valter Mainetti and his Sorgente Group have acquired a majority piece of the Flatiron Building in New York. Estimated to be worth about $180-190M, the Flatiron building is a landmark building sitting at the intersection of Fifth Avenue, Broadway, and 23rd Streets.

In another notable deal, Abu Dhabi investment council (United Arab Emirates) is currently in negotiations to acquire a 75% stake in the Art-Deco Chrysler building. The deal would value the building at about $1 Billion. The building is on a 140+ year ground lease from Cooper Union with the remaining 25% stake being owned by Tishman Speyer.

High oil prices and the weak dollar have made New York a prime target for middle eastern investors and sovereign wealth funds. For Europeans, the weak dollar has spurned tourism and investment in the United States, from flats and vacation homes, to institutional grade real estate assets.

For seven years, vacancy and rental rates in San Francisco made it economically infeasible for developers to build new office buildings. With rents up, vacancy rates down, and large blocks of space hard to find, speculative building has returned to San Francisco.

There is currently approximately 2M square feet of office space under construction in San Francisco. Bay Area wide, that number is close to 10M.

Some of the projects in San Francisco under development include:

500,000 SF @ 555 Mission Street (Tishman Speyer)
300,000 SF @ 500 Terry Francois Blvd (Lowes Corp)
160,000 SF @ Owens Street (Alexandria)

We anticipate that top floors of view buildings will see strong tenant demand while lower floors will have more difficulty leasing as the price differentials between new construction and existing buildings are difficult to justify. Regardless, initial buildings coming online will likely benefit with the level of risk escalating for developers building subsequent buildings.