Posts Tagged ‘Inc.’

The 4th Quarter Rush to Sell

Friday, January 4th, 2013

With the Bush era tax cuts on capital gains poised to expire at the end of the year, the investment sales market went on a tear in the 4th quarter. According to CoStar, total deals were up 46% from the same time a year ago based on transaction data through Dec. 31, according to Brian Kerschner, real estate economist for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting company.

Not surprisingly, it was small-cap deals — assets most likely to be sold by owners hoping to mitigate the tax consequences of a sale – that really spiked, increasing in volume by 77% in the fourth quarter. Large-cap deals typically have less exposure to capital gains because they tend to involve REITs and pension funds which are tax advantaged investors.

The maximum rate for long-term capital gains had been 15% for individuals earning up to $85,650 a year or families earning up to $142,700. If we had gone over the cliff, the rate would have jumped to 20%.

Deals that closed in the waning days of 2012 included the following:

  • Amazon.com had the blockbuster of the year:  It paid $1.16 billion for its Seattle headquarters, encompassing 11 buildings totaling 1.8 million square feet.
  • Cupertino, CA-based Mission West Properties, Inc. sold all of its real estate assets for about $1.3 billion in two separate transactions
  • Dexus Property Group sold the majority of its U.S. industrial portfolio for $561 million as part of its strategy to exit the U.S. market by April, reallocating proceeds from offshore property sales to core Australian properties, CEO Darren Steinberg said. The sale of 26 of Dexus’  27 American properties was achieved at a significant premium to their book value.

Incidentally, the same logic applied to the residential market. New York, for example, saw an extraordinary 2,598 home sales in the last three months of 2012 — the highest for a Manhattan fourth quarter in at least 25 years.

Under the terms of the fiscal-cliff deal reached Tuesday, capital-gains taxes increased only for annual incomes over $400,000 for individuals and $450,000 for households. They will pay a new capital gains tax rate of 23.8%.

Hostess Liquidation Sets Off Online Twinkie Run

Wednesday, December 5th, 2012

As Hostess Brands, Inc. – the 80-plus-year-old baker of such iconic brands as Twinkies, HoHos, Hostess CupCakes, DingDongs and Wonder Bread – enters into liquidation and probable acquisition, the online price of the sugar-filled delicacies is soaring.

As soon as Hostess announced the end of production, Twinkie lovers started scrambling to buy every Twinkie they could find.  In some cases, the buyers visited eBay and Craigslist to sell their hoards – presumably at a significant profit.  Price tags for a box of 10 Twinkies hit four and even five digits; the retail price is in the $5 range.  One enterprising eBay seller, who is asking $10,000 for a box of Twinkies, has vowed to donate 10 percent of the proceeds to local charities.  Despite the conventional wisdom about the longevity of Twinkies, the majority purchased in mid-November will be past their sell date in approximately one month.

Chances are that another company will buy out Hostess Brands and breathe new life into its products.  The most likely purchaser is C. Dean Metropoulos and Co., a private-equity firm that specializes in resurrecting troubled heritage brands, such as Pabst Blue Ribbon beer, Bumble Bee Tuna, Chef Boyardee pasta, and PAM cooking spray.  Of greatest value to any purchaser are Hostess’ intellectual property rights, which allow the manufacture and sale of the brand’s flagship products.

Hostess’ intrinsic brand value means that acquiring the name is a good business decision for the eventual buyer. According to Michael J. De La Merced, “One company’s castoffs can be another company’s golden goose — or in this case, cream-filled confection.  It is a common trade in bankruptcy court.  Sellers are hoping to drum up cash for their creditors, and buyers are betting they can revive the brands.  Even though consumers are increasingly crunching on kale, Twinkies and other sugary snacks still make loads of money.  Hostess makes billions of dollars of sales each year.”

Existing-House Sales Spike in April

Tuesday, May 29th, 2012

If you want to sell a product, price it correctly. That theory at long last appears to be working in the U.S. housing market.  The National Association of Realtors (NAR) reported that sales of existing homes rose 3.4 percent in April when compared with March.  One reason is that asking prices were remarkably affordable.  The interest rate on a 30-year fixed-rate mortgage was 3.79 percent, the lowest since record-keeping began in 1971, according to Freddie Mac.  The Realtors’ index of affordability hit a record high in the 1st quarter and factors in sales prices of existing homes, mortgage rates, and household income, which is gradually strengthening as the labor market improves.

The average sales price was 10.1 percent higher when compared with one year ago.  That has the potential to lure buyers who decide they can’t wait for even cheaper prices.  “Today’s data provide further evidence that the housing sector is turning the corner,” said economist Joseph Lavorgna of Deutsche Bank Securities.  The numbers could see more improvement in coming months.  Action Economics Chief Economist Michael Englund said that “The existing home sales data generally continue to underperform the recovery in the new home market and other indicators of real estate market activity.”  But, he added, “the trend is upward.”

Owner-occupied houses and condominiums dominated the market, a change from all-cash deals by investors snapping up distressed properties.  Employment gains and record-low mortgage rates may make houses affordable Americans, eliminating a source of weakness for the world’s largest economy just as risks from the European debt crisis rise.  “We are making incremental progress,” said Millan Mulraine, a senior U.S. strategist at TD Securities, Inc., who correctly forecast the sales pace.  “People are becoming more confident about job prospects and about taking on mortgages.  This is all positive for the economy.”

Even with this uptick, sales are well below the nearly six million per year that economists equate with healthy markets.  The mild winter encouraged some people to buy homes, which drove up sales in January and February, while making March weaker.

First-time buyers, a key segment critical to residential recovery, rose in April and accounted for 35 percent of sales, up from 32 percent in March.  “First-time homebuyers are slowly making their way back,” said Jennifer Lee, an economist at BMO Capital Markets.  “That is still below the 40-to-45 percent range during healthy times, but the highest in almost half a year.”  Homes at risk of foreclosure accounted for 28 percent of sales.  That’s approximately the same as was seen in March sales statistics, but down from 37 percent of sales in April 2011.

Wall Street analysts expressed caution about seeing the increase as a sign that home values are about to make a big comeback.  NAR’s price calculations may have been skewed by larger homes coming onto the market, analysts said.  According to NAR economist Lawrence Yun, seasonal factors might have played a role in the price increase because families tend to buy in the spring, which means bigger homes comprise a larger share of total sales.  “It does echo the message sent by most other related measures that have shown house prices stabilizing or firming,” said Daniel Silver, an economist at JPMorgan.  Home prices, according to the S&P/Case Shiller composite index, have fallen by approximately one-third since the middle of 2006.  “Although the data seem to imply that there is a relative good balance between buyers and sellers, it is unlikely that home prices can recover on a sustained basis until the number of distressed properties is more significantly reduced,” said Steven Wood, chief economist at Insight Economics.

The housing inventory climbed 9.5 percent to 2.54 million, representing a 6 ½-month supply.  CoreLogic estimates that the shadow inventory — homes that aren’t on multiple listing services that are either seriously delinquent, in foreclosure or real-estate-owned — totaled 1.6 million units as of January.

CNBC’s Diana Olick is unimpressed with the price spike.  “The median price of an existing home that sold in April of this year was $177,400, an increase of just over 10 percent from a year ago.  That is the biggest price jump since January of 2006.  The difference between now and then, though, is the 2006 price jump was real, this latest spike is not.  As we reported here on the Realty Check last month, a lack of distressed supply, that is foreclosures and short sales, is pushing overall home sales lower.  That’s because the majority of the sales action for the past few years has been on the low end of the market.  Now, as banks try to modify more delinquent loans to comply with the recent $25 billion mortgage servicing settlement, and as investors rush in to buy distressed properties and take advantage of the hot rental market, the distressed market is drying up.  The share of home sales in the $0 — 250,000 price range made up over 73 percent of all sales in February; that has already dropped to 67 percent in April.  If you look at sales by price category, you see the most startling evidence of this shift in what’s selling on the low end out west.  Sales of homes $0 — 100,000 dropped over 26 percent out west in April, but rose 21 percent in the $250 — 500,000 price range.”

House Prices At 2002 Levels

Monday, May 14th, 2012

The S&P/Case-Shiller home price index of 20 cities revealed a 3.5 percent decline when compared with last year.  Home prices are now at their lowest levels since November 2002.  “Nine (housing markets) hit post-bubble lows,” said David Blitzer, spokesman for S&P, including Atlanta, Charlotte, Chicago, Las Vegas and New York.  “While there might be pieces of good news in this report, such as some improvement in many annual rates of return, February 2012 data confirm that, broadly-speaking, home prices continued to decline in the early months of the year,” Blitzer said.

The primary challenge continues to be foreclosures and other distressed property sales, according to Pat Newport, an analyst for IHS Global Insight.  “We still have six million homeowners who are late on their payments,” he said.  “We’ll still have lots of foreclosures, which will depress prices.”  The good news is that some of the worst hit of the index’s 20 cities appear to be on the mend.

“Some (cities) which have declined considerably over the last five to six years now have begun to exhibit an uptick in home prices,” said Luis Vergara, a director with Mission Capital Advisors.  Phoenix prices climbed 3.3 percent year-over-year.  Miami recorded a gain of 0.8 percent over 2011.  Even Las Vegas appears to be turning more positive, with home prices down only 8.5 percent, compared with a drop of nine percent in January.

The weakening may be due to the typical pattern of minimal interest during winter and greater interest in housing during the spring and summer. According to S&P, the unadjusted series is a more reliable indicator.  House prices have fallen by more than one-third from their peak when the bubble burst.  The glut of distressed properties on the market have slowed the market, as has the unemployment rate and tough credit conditions, which have offset the benefit of mortgage rates near or at record lows.

“The broad prospect for home prices is at best flat over the course of the year,” said Tom Porcelli, chief economist at RBC Capital Markets.  “And as much as we have had progress with the supply and demand imbalance, it is still a challenge to gather any momentum here.”

According to the Commerce Department, March home sales fell 7.1 percent to a seasonally adjusted 328,000-unit annual rate.  February’s sales pace was revised higher to 353,000 units, the best showing since November of 2009, from the previously reported 313,000 units.  “The conditions in housing are still extremely weak, but there are some very subtle, less negative, signs suggesting stabilization there,” said Sean Incremona, economist at 4Cast Ltd.

Stabilizing home values are necessary for a sustained rebound in the housing industry by giving prospective buyers confidence. Near record-low borrowing costs and additional hiring may help the market absorb foreclosures, which may mean housing will no longer hinder economic growth.  “Mortgage rates are very, very low, but you really need to see strong job growth,” said Scott Brown, chief economist at Raymond James & Associates, Inc.  “It’s still a very long way to go before we get a full recovery.”

The latest reports indicate that homebuilders are still trying to get back on their feet.  The National Association of Home Builders/Wells Fargo sentiment index in April declined to a three-month low.  This measure of anticipated sales for the next six months was not good news.  Sales of existing houses fell in March for the third time in the last four months.  Home purchases fell 2.6 percent to a 4.48 million annual rate from 4.6 million in February, according to the National Association of Realtors.  The average rate on a 30-year fixed-rate mortgage hit an all-time low of 3.87 percent in February and was little changed at 3.90 percent in the week ended April 19, according to Freddie Mac.

Writing for the Index Universe website, Cinthia Murphy says that “A number of encouraging economic indicators such as an improving job market and slowly growing demand for homes loom as factors that some hope should start to help underpin housing values, even if consumer confidence remains low for now.  A clear recovery in housing is deemed crucial for a full-fledged economic recovery in the U.S. after the credit crisis of 2008 sent housing as well as the financial markets sharply lower.  U.S. housing was at the center of that crisis, and much of the developed world remains mired in slow, debt-constrained, growth.

Michael Feder, CEO of Radar Logic, a real estate data and analytics firm, thinks Case-Shiller is underselling the momentum in the housing recovery. Radar Logic’s 25-city index, which tracks daily activity, is expected to show a month-over-month increase of nearly two percent during February, Feder said.  The difference frequently comes when the market is turning, though Feder acknowledges that the mild winter may have created some demand.  Another thing to look at is investment buyers coming into the market, which Feder believes could create something of a “mini-bubble” in prices given their willingness to pay premiums.  News of that willingness spreads pretty quickly.  While it can draw in some fence-sitters who have been waiting for a bottom, there is little evidence of that to date, Feder said.

CompStak Wants to Make Office Comps Transparent

Monday, May 7th, 2012

Two young New York entrepreneurs are looking to cash in on what might be one of the commercial real estate brokerage community’s best-known secrets – that brokers commonly share hush-hush details of office transactions.  But Michael Mandel, a 29-year-old broker who spent more than five years with Grubb & Ellis, and Vadim Belobrovka, a 33-year-old software engineer, have the potential to shake up the brokerage world if their online service gains traction.  Their company — CompStak Inc., — provides the disruptive technology that is used to challenge the conventional order of quite a few other businesses.

Mandel established CompStak because “commercial real estate information should be available and transparent, and because most commercial real estate technology is from the Flinstones era.”

In theory, when leases are signed, tenants, landlords and brokers sign non-disclosure agreements in which they say they will not disclose lease terms, like rents, landlord concessions and escalation clauses.  In reality, brokers regularly share “comps” as a professional courtesy so they have knowledge of market rates for buildings and neighborhoods.

What Mandel and Belobrovka are doing is gathering as many of these “comps” as they can and offering brokers and real-estate professionals access to their data base in exchange for information.  The system currently is being tested and is expected to be launched in the summer.  Mandel and Belobrovka hope that landlords, tenants, private equity firms, hedge funds and others will pay “five to six figures” for access.  “The reality is that everyone has been exchanging this information,” according to Mandel.

The men face several obstacles, as they work on an extremely tight budget and attempt to attract investors.  CompStak also might face strong opposition from brokerage firms who could perceive the service as a competitive challenge to their dominance of market information.  These firms might not allow employees to contribute to CompStak.  CBRE Group Inc said that the firm does not “share comps with any other outside organizations, ever.”

The quality of CompStak’s data is critical.  Mandel and Belobrovka say their data base currently includes 2,900 comps for deals closed in the last two years and a total of 6,000 comps.  Industry estimates are that about 2,500 Manhattan leasing deals are done a year.  If those numbers are correct, CompStak has collected approximately half of all comps for the last several years.  CompStak executives say they haven’t met resistance from the brokerage industry yet and don’t expect any, noting that brokerage firms offer a lot more than quality information.  “If you think that (lease comps are) your only advantage, you’re probably not a very good broker,” according to Mandel.

Writing for the A Student of the Real Estate Game website, Joe Stampone says that “Throughout my brief career in commercial real estate, I’ve seen a lot of innovation. From 3D mapping, mobile, and retail tech, to the data space, tech-related start-ups are proliferating.  I was lucky enough to be part of a test group for CompStak, a new crowd-sourced database of lease comparables launching in New York City.  CompStak is destined to be a game-changer and one of the founders was nice enough to take the time to sit down and answer a few questions.”

Mandel describes CompStak this way: “The germ of the idea for CompStak, and our first product, is a marketplace for the exchange of lease deal information (comps).  Others have certainly identified this need, and a few have acted on it, but many others never tried, because unlike collecting sales data and other property information there are no large sources for this information.  We realized very early on, that if we didn’t tackle this problem the right way, we could not succeed.  We had to create a site that is very easy to use, allow our users to add and search for a lot of data, and properly incentivize brokers and appraisers to share information that is near and dear to them.  Our lease comp marketplace is just the first step in our larger vision.  Our ultimate goal is to increase transparency in commercial real estate information on the whole.  This includes the information that buyers, sellers, tenants, landlords and brokers use in doing transactions, and the information owners use to manage their buildings and maximize their revenue.”

Mandel is bullish on the future of CompStak. “When all the stats get tallied, 2011 may surpass the record number of square feet of office space transacted in NYC.  With the instability in the national economy combined with the turmoil in European countries, I think it will be tough for 2012 to compete.  The segment of NYC real estate that I’m most interested in, is office space for tech startups.  Tech startup real estate has been one of the strongest drivers of NYC office space in the past year, and I think it will continue to make a big impact in 2012.  Availability of office space in Midtown South (where most tech startups are located — roughly between Canal and 34th Street — is lower than Downtown and Midtown, and is the lowest it’s been in three years.  Finding cool creative loft space for startups is really tough right now, and the smaller the space you need, the harder it is to come by.”

Gas Prices Coming Back to Earth

Tuesday, May 1st, 2012

After rising steadily for four months, gas prices at last seem to be stabilizing. Suddenly, pump prices have fallen six cents over two weeks to a national average of $3.88.  Experts say gasoline could fall another nickel or more in the immediate future.  Drivers might also get to say something they haven’t since October 2009 — they’re paying less for gas than they did last year.

“It’s nice, much more manageable,” said Mark Timko, who paid less than $4 per gallon recently in Burr Ridge, IL, a Chicago suburb, for the first time since March.  “I wasn’t sure how high they were going to go this year.”

Gas prices are lower than they were a year ago in 11 states, according to the Oil Price Information Service.  At $3.88, the national average is still costly, but it’s less than the peak of $3.94.  Predictions of $5 gasoline have  — thankfully evaporated.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, believes that gas prices will drop to a national average of just above $3.80 soon.  Stuart Hoffman, chief economist at PNC Financial Services Group, said declining prices will put more money into the economy that Americans can spend on other things.  A 10-cent drop in gas prices means drivers have an extra $37 million per day.

Stabilizing crude-oil prices and “sufficient supplies” of gas have led to the price decline, Trilby Lundberg, president of Lundberg Survey, Inc., said.  The drop was the first in Lundberg’s twice-monthly surveys since December. The costliest gas in the lower 48 states was in Chicago, where the average was $4.26 a gallon, Lundberg said.  The cheapest price was in Tulsa, where customers paid an average of $3.52 a gallon.  “We can thank crude oil for allowing gasoline to do what it has been wanting to do for weeks, which is drop,” Lundberg noted.

The price of gas is becoming an issue in the 2012 presidential election.  President Barack Obama urged Congress to boost federal supervision of oil markets, including larger penalties for market manipulation and greater power for regulators to increase the amount of money traders must put up to back their energy bets.  “We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick,” Obama said.  Mitt Romney, the likely Republican nominee, has accused the Obama administration of disrupting domestic oil production with regulations.

The Energy Information Administration weekly report noted that the nation’s crude oil stocks rose for the fourth straight week by 3.9 million barrels to 369.0 million barrels, better than anticipated.  Gas stocks fell by 3.7 million barrels to 214.0 million barrels.  Demand for gas saw a relatively small retraction of 103,000 barrels per day (bpd) to 8.681 million bpd.  Demand in the same week in 2011 was 500,000 bpd higher.  The four-week demand average for gas is still falling somewhat and currently stands at four percent.  Gas demand of 8.775-million bpd represents a 94,000 bpd increase, but reflects a 288,000-bpd drop from the same week last year.  The four-week moving average shows gas demand destruction of 2.8 percent; and the year-to-date numbers imply about 5.9 percent lower consumption.  Analysts can split hairs about actual motor fuel demand, but it is clearly lower than last year,

“April has seen more days of gas price declines than any month this year, which has motorists and analysts alike wondering if a gas price break is under way,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “While several factors influencing crude oil prices remain in play, some analysts believe gas prices will continue to retreat and sometime in the next ten days or so we could be paying less at the pump than we were a year ago.”

Americans may be mending their gas-guzzling ways, according to the Washington Post. According to Steven Mufson, “As prices have neared and in some cases topped $4 a gallon, drivers have cut their consumption of gasoline to its lowest levels in a decade, driving less and buying cars that are more fuel-efficient.  The adjustment has slowed the climb in gasoline prices, which until last week had risen for 10 consecutive weeks, and could preserve some money for Americans to spend on other items as the economy struggles to recover more convincingly.  In the Washington area, there has been an increase in applications for carpooling under the Commuter Connections program, which links people seeking to share rides. Applications rose 20 percent last year and 10 percent in January and February, in each case closely tracking the increase in gasoline prices, according to Ronald Kirby, director of the department of transportation planning for the Metropolitan Washington Council of Governments.  The response to $4 gasoline is reinforcing a trend toward lower fuel consumption.  This will be the third year in the past five with historically high oil prices. Even before the latest price spike, gasoline consumption had dropped six percent from 2007 through 2011, the Energy Information Association (EIA) said.  The Federal Highway Administration adds that the number of vehicle miles driven over a 12-month period ending January was lower than in any year since 2004.”

Gasoline purchases totaled four percent of total consumer spending in 2011, noted Mark Zandi, chief economist of Moody’s Analytics.  That’s more than the 2.3 percent recorded when crude oil prices crashed in 1998, and significantly less than the six percent level in 1981 when an oil price shock shook the economy.  “I’ve been surprised, at least so far, that $4 a gallon hasn’t done more damage,” Zandi said.  “So far, it doesn’t seem to have done any.”  According to Zandi, the improving job market is one reason.  Another is that the warm winter reduced people’s heating bills and evened out total household energy costs.

Let’s Go Shopping!

Tuesday, April 24th, 2012

Despite rising gas prices, retail sales in the U.S. rose 0.8 percent in March, proof that consumers are still filling up their tanks, according to economists.  The rise in purchases follows a 1.1 percent increased in February that was the biggest in five months, according to a survey of 71 economists.  The gain sent retail sales to a record high of $411.1 billion, 24 percent higher than the recession low hit in March 2009.  “Retail sales are going to end the quarter on a positive note,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc.  “Underlying job growth is decent.”

Sales may have been helped by the unusually warm weather. The average temperature was 51.1 degrees Fahrenheit, the warmest on record for the month in the past 117 years, according to the National Oceanic and Atmospheric Administration.  The economy expanded “at a modest to moderate pace” from mid-February through late March as manufacturing, hiring and retail sales strengthened, according to the Federal Reserve’s latest Beige Book report.  The central bank is maintaining its benchmark interest rate near zero until late 2014 to encourage economic expansion.

Americans spent more on building materials, cars, electronics, furniture and clothing in March.  A separate Department of Commerce report showed that American companies restocked at a steady pace in February, which suggests that businesses expect consumers to continue spending this spring.  The retail sales report is the government’s initial monthly look at consumer spending, which represents 70 percent of economic activity.  The increase, along with other positive data on inventories and trade, suggests growth in the January-March quarter could be stronger than first thought.  Economists are estimating growth at an annual rate of between 2.5 percent and three percent in the 1st quarter, which is in line with the annual pace reported for the October-December quarter.  Americans are feeling greater confidence in the economy after seeing hiring strengthen over the winter.  Job gains were typically 246,000 per month from December through February.

In terms of cars, “The industry and consumers have been very resilient in the face of higher pump prices,” Don Johnson, vice president of U.S. sales at General Motors, said.  “The steadily improving economy is playing a role and so is pent-up demand and an improved credit market.”

Corporate stockpiles rose a seasonally adjusted 0.6 percent, according to the Commerce Department. That’s less than January’s upwardly revised gain of 0.8 percent. The increase pushed stockpiles to $1.58 trillion which is nearly 20 percent more than the recent low hit in September 2009, just after the recession ended. Sales grew faster than inventories in February, rising 0.7 percent.  This is a good sign because it is evidence that companies aren’t building too much inventory, which can result in cutbacks in production in the future.

“The pace of inventory building is consistent with what you’d expect to see in a gradual expansion,” said Tim Quinlan, an economist at Wells Fargo.  Businesses are rebuilding their stockpiles after cutting them over the summer in fear of a double-dip recession.  Steady inventory growth in the 1st quarter, as well as a narrower trade deficit in February and stronger retail sales, has lifted the outlook for growth.

American households “have the income to propel their purchases now that we’re seeing job growth,” said Russell Price, senior economist at Ameriprise Financial Inc., the third- best forecaster of retail sales for the 24 months ended in March.  “They have adjusted to the higher price of fuel.  The economy now needs to build on its own momentum.”

A New Chapter for Iconic Empire State Building

Wednesday, March 14th, 2012

The landmark 102-story Empire State Building in midtown Manhattan could raise as much as $1 billion in a share sale and become a real estate investment trust (REIT), if the company that controls that iconic structure if its plans pan out.  According to a Securities and Exchange Commission filing, Empire State Realty Trust, Inc., intends to list the shares on the New York Stock Exchange.  The firm, Malkin Holdings, LLC, will consolidate a group of closely held companies to form the REIT as part of the IPO, according to a separate filing.

Malkin, supervisor of the company the holds the title to the tower, said that it had “embarked on a course of action” that could result in the Empire State Building becoming part of a new REIT.  Malkin Holdings supervises property-owning partnerships led by Peter and Anthony Malkin, and owns the 2.9 million-square-foot Empire State Building in conjunction with the estate of Leona Helmsley.  Bank of America, Merrill Lynch and Goldman Sachs Group Inc. will advise on the IPO.  The price and number of shares were not disclosed in the filing.

The proposed IPO would give investors a rare opportunity to own a piece of one of the world’s most famous buildings as New York’s real estate values rebound after the recession.  Midtown Manhattan office property prices have recovered 87 percent of their value since bottoming out in mid-2009, according to Green Street Advisors Inc., a REIT research firm.

The REIT would consolidate Manhattan and New York area properties owned by companies including Empire State Building Associates LLC, 60 East 42nd St. Associates LLC and 250 West 57th St. Associates LLC. Participants can opt to receive cash instead of shares for as much as 15 percent of the value.

Since gaining control of the building 10 years ago, Malkin has invested tens of millions of dollars to improve the office spaces and cut the cost of heating and maintaining the 81-year-old structure.  That helped attract tenants such as social networking site LinkedIn.  According to the SEC filing, Malkin said that upgrading the building still requires additional investment of between $55 million and $65 million over the next four years.

As with many recent tech and internet IPOs, the company plans to have two classes of stock — class A shares that are sold to the public and worth one vote, as well as class B shares with 50 votes each.  The structure leaves the Malkin family with significant control.  The proceeds will pay existing stakeholders in the buildings who chose to take cash in exchange for their interests, and to repay debt.  The REIT will list itself on the New York Stock Exchange under the symbol “ESB.”

The Malkins realize that leasing in New York is “highly competitive,” and faces new rivals in the skyline, primarily the One World Trade Center, which will have a broadcast antenna and observation deck that could attract tenants away from the Empire State Building.

At 1,250 feet and 102 floors, the art deco-style building is one of New York City’s most recognizable tourist destinations, enjoying its second stint as the city’s tallest building.  It was the world’s tallest building from its 1931 opening until 1974, when the 442-meter Sears Tower (now Willis Tower) was completed in Chicago.

The building played a starring role in several movies, most notably “King Kong,” “An Affair to Remember” and “Sleepless in Seattle.”

CFTC Gives Tentative Green Light to Volcker Rule

Wednesday, February 1st, 2012

The federal Commodity Futures Trading Commission (CFTC) proposed limiting banks’  proprietary trading and hedge fund investments under the Dodd-Frank Act’s Volcker rule. The CFTC  3-2 vote makes it the last of five regulators to seek public comment on the proposal. This vote opens the measure to 60 days of public comment.  The rule, named for former Federal Reserve Chairman Paul Volcker, was included in Dodd-Frank to rein in risky trading at banks that benefit from federal deposit insurance and Fed discount window borrowing privileges.

The CFTC stayed mum when the Fed, Federal Deposit Insurance Corporation, Securities and Exchange Commission and Office of Comptroller of the Currency released their joint proposal last year. The four agencies extended the comment period on their proposal until February 13 after financial-industry groups and lawmakers cited the complexity of the rule and the lack of coordination with the CFTC in requesting an extension.

The CFTC may soften Dodd-Frank a bit, granting Wall Street banks exceptions to rules requiring dealers to sensibly believe their derivatives are suitable for clients and in the best interests of endowments and other so-called special entities.  The rules “implement requirements for swap dealers and major swap participants to deal fairly with customers, provide balanced communications, and disclose material risks, conflicts of interest and material incentives before entering into a swap,” CFTC Chairman Gary Gensler said.

Opponents say the CFTC proposal would cause “severe market disruption” by transforming the relationship between swap dealers and clients such as pensions and municipalities, according to Sifma and the International Swaps and Derivatives Association, Inc.. Under the final rule, dealers must disclose material risks and daily mid-market values of contracts to their clients. The CFTC may also complete rules designed to protect swap traders’ collateral that is used to reduce risk in trades. The rule insulates the collateral if the broker defaults, while allowing the customer funds to be pooled before a bankruptcy, according to a CFTC summary of the regulation.

Commissioner Scott O’Malia voted in favor or the rule, but said he did not want to give market participants “a misleading sense of comfort” that it would have prevented the loss of customer money at the brokerage giant.  “This rulemaking does not address MF Global,” O’Malia said. “This rulemaking would not have prevented a shortfall in the customer funds of the ranchers and farmers that transact daily in the futures market. Nor would it have expedited the transfer of positions and collateral belonging to such customers in the event of a collapse similar to that of MF Global.”

Commissioner Jill Sommers, who voted against the rule, criticized the rule for doing nothing to protect a futures commission merchant’s futures customers.  “Given recent events, we need to re-think this approach so we can provide adequate protections, in a comprehensive and coherent way, to swaps customers and to futures customers,” Sommers said. “I do not favor a piecemeal approach to customer protection.”

Harrisburg, PA, Goes Broke

Monday, November 14th, 2011

Pennsylvania’s capital city, Harrisburg,  filed for a rare Chapter 9 bankruptcy protection, listing debts of $500 million and assets of $100 million, according to an attorney for the city council.  Mark D. Schwartz said he filed the documents by fax to a federal bankruptcy court.  Such a filing could not be confirmed with the U.S. Bankruptcy Court in Harrisburg.  The filing comes on the heels of the city council’s 4-3 vote Tuesday night to seek bankruptcy protection.  “This was a last resort,” said Schwartz.  “They’re at their wits end.”

They were tired of being humiliated and denigrated,” Schwartz said, referring to the four council members who voted for a bankruptcy filing.  Chapter 9 is “a much better forum if you really want to address the financial problems of the city,” Schwartz noted.  Chapter 9 bankruptcy allows the financial reorganization of cities, towns, taxing districts, counties, school districts and municipal utilities.

Unfortunately, this is a scenario that other cash-strapped cities across the country could face in the future.  This comes on the heels of Topeka, KS, repealing a law against domestic violence because of the cost of prosecuting offenders.

“This really is our only option out there, ” Councilman Brad Koplinski said. “I believe this is the only thing that will work.”  Controller Dan Miller said that Harrisburg had attempted to tackle the debt problem for years and that he felt the state of Pennsylvania had tried to “railroad” the city’s citizens.  “It’s unfortunate that it came to this,” Miller said.  In June, the Pennsylvania legislature passed a bill saying bankruptcy would result in the loss of state aid, and added an amendment to the bill in September that permits a state takeover of Harrisburg.  The city must repay $310 million in bonds and restructure its debt, as well as reimburse Dauphin County and insurer Assured Guaranty Municipal, which both made payments that the city missed on its incinerator project.

“The size of the outstanding bond debt is overwhelming,” according to the bankruptcy filing.  “Negotiations are impracticable with one group of creditors where negotiations with another key group have hit an impasse.”  Harrisburg’s bondholders include Ambac Financial Group, Inc., with more than $70 million of revenue bonds, and Covanta Holding Corporation, with about $120 million of bonds and advances of funds.

“The city meets the ‘generally not paying’ definition of insolvency, because it has repeatedly failed to pay the guaranteed incinerator bond debt as it has become due,” according to Harrisburg’s filing.  “Under the guarantees the city would need to cover a combined $83 million of past due payments and the 2011 debt service.”