Friday, March 07, 2008

Lost in Translation? Oh, About $3 Billion

Harry’s Helpline
Some sit it out, but GM Bldg bids top $3B

So reads today’s business page headline in the New York Post, the official newspaper of record here at NotMakingThisUp.

The headline refers, of course, to the frenzied bidding now in progress for the storied General Motors Building, a skyscraper coveted for its fantastic views of Central Park.

Outside observers, however, may well wonder what the excitement is all about: the leases apparently won’t cover the cost of borrowing $3 billion, and the thing just looks completely unexceptional with one exception: it has a very cool Apple Store more or less in its lobby.

Oh, and Wall Street, on whose shoulders most commercial real estate properties in Manhattan ultimately rest, is not exactly going through an up-cycle right now.

In fact, the layoffs around the Street are happening fast and furious. Just yesterday I got a call from a veteran trader whose only mistake was working for a broker owned by a bank whose risk managers utterly failed to manage the risk of lending money to non-credit-worthy individuals when money was cheap and the lending was easy.

In other words, what happened in sub-prime is now making its way down Wall Street.

Still, Harry Macklowe, who acquired the GM Building along with a bunch of other properties at the precise top in the commercial real estate cycle last year, needs to sell it, quickly, to pay off one of the biggest margin calls in history.

And, by all accounts, it looks like a deal may get done.

But are we here at NotMakingThisUp the only observers pondering the GM Building’s fate who can’t help thinking “Rockefeller Center” every time we read a story on this latest bidding war for a high-profile New York City property at a time of financial collapse on Wall Street?

Back in late 1989—two years after the Crash of ’87, well into a declining real estate cycle and apparently way before the current crop of bidders on the GM Building deal were born—Rockefeller Center was sold at what everybody in the then-free world knew was an absurd price to a Japanese group that appeared not to give a rap about cap rates, the health of Wall Street, and other such petty details.

Armed with cheap money from home, they wanted Rock Center.

And they got it.

Of course, as history shows, they subsequently lost it.

And while we have absolutely no financial interest in the matter, we here at NotMakingThisUp are willing to bet that after the ink dries on the contracts and the last toast has been drunk at the closing dinner, the GM Building Deal of 2008 will go down in commercial real estate lore right alongside the Rockefeller Center Deal of 1989.

History doesn’t repeat itself, but it rhymes,” Warren Buffett likes to say (quoting Mark Twain, as our readers subsequently pointed out).

In this case, however, we think history is indeed repeating itself. It's only been translated into a different language.

Jeff Matthews

I Am Not Making This Up

© 2008 Not Making This Up LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


rexl said...

mark twain said it.

jimmy105 said...

It won't surprise me to see a "bottom" declared in the commercial real estate market as soon as the deal is announced. (Just like so many people are willing to make the same statements about residential following Toll's remarks and some anectodal observations from some Florida realtors, the most optimistic people on the planet).

CurmudgeonlyTroll said...

if you want a real POS deal, how about MGM unloading half of City Center to the sheikin' denizens of doobie doobie dubai for $5b or so.

I'd wager Terry Lanni poured himself something fine and breathed a sigh of relief after that one closed.

da hedgies love the GM building and its ilk... step outside your apt at 1 CPW, the Pierre or industry standard digs on Fifth or Park, and the GM building (or 9W57) is the closest top of the line building.

Got the views, across the street from Bergdorf to shop for the missus, Barneys for the mistress, the Plaza and other fine hotels to tryst with your concubines.

I'll take that over CityCenter any day. A presentable slumlord who can clear out the riff-raff non-hedgie law firm losers and whatnot can make a bundle and be the next Sand Hill Road. Get on the Robin Hood board and maybe they'll even let him in on some deals.

but if an emir is involved you're probably on the right track.

Anonymous said...

One has to wonder, Jeff, whether other commercial real estate deals financed by bridge loans will "belly up" over the next 10 motnhs due to the recent tightening of credit markets?