Thursday, June 12, 2008

Foreign Capital to the Rescue...on the cheap?

News that the emirate of Abu Dhabi is in talks to purchase Prudential Financial's stake in NYC's iconic Chrysler Building makes foreign capital look more and more like the backstop of American commercial real estate values. However it looks like foreign investors are demanding bargain pricing just like everyone else, even if they do have plentiful access to capital and historically favorable exchange rates.

It seems the recent GM Building sale (see 5/27/08 post) for $1400/sf may have been an anomaly for Manhattan office pricing. The equally 'high-cache' Chrysler Building trade is hovering around $883/sf, and Deutsche Bank is currently trying to unload seven other Class-A Manhattan office towers with pricing in the $835-$850/sf range. This pricing is down significantly from what the buildings would have been worth pre-credit-crunch, but maybe prices are reaching a point where more foreign investors will get off the sidelines and the volume of trades will start to pick up.

It's also interesting to note that the Chrysler Building trade doesn't involve a foreclosure or work-out scenario (the GM Building and Deutsche Bank portfolio were part of the Macklowe debacle). It's a straight-up open market sale from a non-desperate seller to a non-desperate buyer providing a sense that true property values really are coming down across the board.

Any thoughts on where the next low-water-mark in pricing will come from? Better yet thoughts on when we'll be trending up again? Will the turnaround in pricing come from foreign buyers rushing into US properties in anticipation of a rising dollar?

Llenrock Group

"You'll stay up till this dump shines like the top of the Chrysler Building!"

-"Hard Knock Life" Annie

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