Posts Tagged ‘LLC’

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.”

S&P Downgrade Costs Investors $1 Trillion

Wednesday, September 14th, 2011

Shareholders in American companies can blame Standard & Poor’s  for taking $1 trillion of their money after the rating firm downgraded Treasury securities for the first time in American history to AA+ from AAA.  Now, some of the most experienced investors say the stock market losses make no sense.  While the benchmark index for U.S. equities fell as much as 6.7 percent — or $1.03 trillion — since the downgrade, 10-year Treasuries rallied the most in more than two years and the government financed its quarterly debt obligations at the lowest interest rates ever.  Treasuries have returned two percent since the downgrade. 

“One of the most perverse things I’ve seen in 25 years of doing this is that S&P downgrades the United States government, and investors’ reaction is to run towards the securities that they downgrade, selling businesses without asking at what price,” said Kevin Rendino, a money manager at BlackRock Inc., which oversees $3.65 trillion.  “Equity prices have swung too far.” 

The downgrade, which diverged from Moody’s Investors Service and Fitch Ratings, turned investors’ focus from the 10th consecutive quarter in which S&P 500 companies topped analyst earnings forecasts.  Per-share profits had climbed 18 percent among companies in the index, with 76 percent topping the average analyst projection, according to data compiled by Bloomberg.  Sales grew by 13 percent. 

“It did a lot of damage to confidence, which had been shaky anyway,” Liz Ann Sonders, New York-based chief investment strategist at Charles Schwab, said.  “We had started to get a sense of a little bit of a lift for the economy in the second half of the year, and you just kind of wiped it out because of the lack of confidence in our political leaders. S&P reflected that with the downgrade, but what it ended up causing was a real confidence crisis, more than an economic crisis.” 

Additionally, the Chicago Board Options Exchange volatility index jumped 50 per cent to 48, the highest level in 29 months and the biggest jump in more than four years, the first trading day after the downgrade was announced. 

“We’re starting to see real disorderly selling, far more than what we’ve been seeing,” said Matthew Peron, head of active equities at the Chicago-based Northern Trust, which manages approximately $650 billion in assets.  At Jersey City-based Knight Capital, senior equity trader Joseph Mazzella said that “It’s scary.  It really is.  I hate it when the market closes below its low, as it sets the stocks up for a follow-through tomorrow.” 

President Barack Obama said that he blames political gridlock in Washington, D.C., for the downgrade.  He announced plans to offer recommendations on ways to cut the federal deficit.  Agreeing with the president is William Suplee, a financial manager with Structured Asset Management in Paoli, PA.  “Almost universally my clients are blaming this on ‘The Government’, this lack of confidence – and that is what it is.  This sell-off is uniformly blamed by my clients on the government’s inability to act rationally. 

According to Genna R. Miller, Ph.D., Visiting Instructor, Economics Department, Duke University, “In terms of the CPA profession, there may have been some fear that the negative outlook on U.S. sovereign debt, as well as possible increases in interest rates, may have caused a further downturn in the economy.  Such a downturn in the economy may have been expected to reduce the demand for accounting services, as clients’ incomes declined.  However, as there have only, at this point in time, been minimal impacts on the economy and the accounting profession, this does not appear to be the case.  It may be the case that the income elasticity of demand for accounting services may actually be quite inelastic.  The income elasticity of demand tells us the percentage change in quantity demanded for accounting services divided by the percentage change in clients’ incomes.  Thus, if there is a relatively inelastic income elasticity of demand, then clients who have had accounting services in the past may continue to do so, despite any declines in their own income.  On the flip side, some financial planners may have experienced an increase in business as some clients may have needed to re-assess portfolio values from a tax perspective or may have needed to comply with disclosure policies with respect to increased risk.”

Mark Vitner, Managing Director & Senior Economist, Wells Fargo Securities, LLC, offers this perspective.  “I think most firms understand that the downgrade does not affect many private businesses.  The downgrade and the problems with the federal budget deficit that precipitated it are primarily a problem for state and local governments and government contractors.  Businesses and governments that receive a large part of their funding from the federal government will be most impacted by the downgrade and renewed emphasis on deficit reduction.”

Rick Mattoon of the Fed believes the downgrade will affect mostly the secondary markets like municipals funds.  Listen to his podcast here.

CMBS Stages a Comeback

Monday, March 14th, 2011

CMBS activity came back strongly during February with more than $6.5 billion in new securitization reported. Additionally, Freddie Mac brought two multifamily-backed offerings totaling $1.86 billion to market.  February’s level of activity is almost two-thirds of all CMBS deals offered in 2010.  The level resembles 2007, when commercial mortgage-backed securities offerings were at their peak.  Because of CMBS’ resurgence, the commercial real estate market is both bullish and fretful.  The rising volume in CMBS loan origination is a welcome sign that liquidity is returning to the markets.  The fact that a relatively large amount was created during the year’s shortest month is raising worries that the still delicate condition of commercial real estate is being sustained by too-eager lenders.

“I think it is clear that CMBS is coming back — something that is probably positive in the short-term as far as jump-starting the investment marketplace and helping to establish a new baseline for pricing while, hopefully, alleviating some of the distress issues out there. But is it a good thing in the long run?” asks Garrick Brown, Northern California research director of Cassidy Turley BT Commercial asked.

“As the number of participants in CMBS lending continues to increase, the competition to originate loans eligible for new CMBS deals will be fierce,” said John O’Callahan, capital markets strategist for CoStar Group.  “Insurance companies, GSEs (government-sponsored enterprises), and even the healthier large banks will lend on the best properties in desirable markets, while CMBS originators will compete among themselves for the leftovers. They will have to cast a wider net across all markets to garner the volumes anticipated in 2011.”

Just 15 months after the initial CMBS issuance, structural, leverage and issuance amount trends have quickly changed, according to Standard & Poor’s. The ‘CMBS 2.0’ market started with the pricing of three single-borrower transactions with relatively simple structures in late 2009; more recent deals have been more complex, more highly leveraged and with significantly higher opening balances.  “Most recently, three $1.2 billion plus conduit/fusion deals were issued this month, each of which included an average of 10 principal and interest bonds and two interest-only classes.  Compared with late-2009 issuances, the newer multi-borrower deals have higher leverage, less debt service coverage and somewhat looser underwriting,” says Standard & Poor’s analyst James Manzi.

Despite the good news from February, Trepp LLC, a provider of commercial mortgage-backed securities (CMBS) and commercial mortgage information, analytics and technology to the global securities and investment management industry, found that the CMBS delinquency rate rose 9.34 percent in January. The value of delinquent loans exceeds $61.4 billion.  “While the rate continues to head higher, optimists can point to the fact that the rate of increase is significantly smaller than it was in the prior two months,” said Manus Clancy, managing director of Trepp LLC.  “Pessimists can counter that the jump comes despite the fact that new issues continue to make their way into the calculation and servicers continue to resolve troubled loans.”

The re-emergence of CMBS does not mean a return to the go-go years of 2004-2007. If $35 billion is issued in 2011, it will total just 15 percent of the peak.  Additionally, the revised underwriting criteria are far more conservative and issuances are smaller and geared toward low-risk assets.  Significantly, originators are more frequently required to retain stakes in the offering.  The CMBS market is expected to steadily climb this year and could see additional issuance in 2012, perhaps rising to $100 billion by 2013.  This would still be less than half the peak level of 2007, but a substantial amount, bringing desirable liquidity to the commercial real estate market.

November Existing House Sales Numbers Disappoint

Tuesday, January 4th, 2011

November Existing House Sales Numbers DisappointExisting home sales in November rose at a slower pace than anticipated, spurred in part because of the end of a government tax credit aimed at encouraging first-time homeowners to buy.  According to the National Association of Realtors (NAR), sales rose 5.6 percent over October to an annual rate of 4.68 million.  Economists had predicted that sales would climb to 4.75 million for the year, according to Bloomberg News.  When compared with November of 2009 – when the tax credit was still available – home sales had fallen by 25 percent.  The tax credit, which was worth as much as $8,000, lifted existing home sales to a two-year high of 6.49 million one year ago.

Reduced prices and lower mortgage rates have made houses and condominiums more affordable, and these factors are likely to have propped up sales to some extent after the government tax credit expired.  The unemployment rate – which is still in the 10 percent range nationally – is also depressing existing house sales.  “Housing is going to remain dead in the water through the middle of 2011,” said Mark Vitner, senior economist at Wells Fargo Securities LLC.  “Foreclosures coming back on the market will put downward pressure on prices.”

November existing home sales rose in the Northeast, the South and the Midwest; the West had the best showing, reporting a 12 percent increase.  The median price rose slightly to $170,600 from $170,000 compared with November of 2009.  Distressed sales, including foreclosures and short sales, totaled one-third of all sales.  NAR officials predict that total existing sales for the year will be in the 4.8 million range, the lowest level recorded since 1997.  Lawrence Yun, the NAR’s chief economist, expects sales to rise to 5.2 million in 2011, which he describes as a “sustainable” rate.

The bottom line is that the existing home market still favors buyers and is likely to remain that way for some time.  Douglas Yearley, CEO of Toll Brothers, Inc., a large luxury homebuilder, said “As the economy improves, we believe our buyers are going to come right back out.  It’s still a buyers’ market and you still need some incentives.”