By now it is common knowledge that Vornado Realty Trust secured the winning bid on the World Trade Center, procuring a 99-year lease from the Port Authority of New York and New Jersey for $3.25 billion--a big deal for big money. This Thursday, March 15, is the official final day of the negotiation process for that bid. At the same time, Vornado is facing tax disputes and troubled credit because of the pricey purchase.
Standard & Poor's has placed Vornado Realty Trust and Vornado Realty LP on CreditWatch with negative implications, affecting securities valued at $450 million. At the time of the rating Gregory J. Whyte of Morgan Stanley Dean Witter told GlobeSt.com, "Does this mean Vornado does not have the capacity to close on the deal--absolutely not. Does it mean that if Vornado can't convince the S&P to re-evaluate them the cost of the transaction will go up? Maybe, but that's about it."
Meanwhile, Goldman Sachs Group presented its plans for the 1.38 million sf site currently occupied by J. P. Morgan Chase & Co. at 55 Water St. to the Lower Manhattan community board. The board voted down the plans and then late last week Goldman Sachs pulled out. The company has repeatedly denied a connection between the board's decision and its withdrawal, which begs the question--is this then indicative of bad news to come?
On the Chrysler Building, experts were mixed in their reviews of the deal that gave 75% of the interest of the buildings to TMW for $300 million. Peter Pattison of Peter Pattison Ltd. tells GlobeSt.com then, "The sophisticated developers and owners thought that the values peaked so there was an enormous amount of sales ending with the World Trade Center." Wayne Lagary of Julien J. Studely disagreed, saying, "If the owner does a good job leasing that owner would do better to get some cheap re-financing from a bank than sell."
Yesterday, the Nasdaq fell 6.3%, sending investors panicking. The S&P has fallen 22.7% from a year ago. It only takes a 20% drop for Wall Street to declare a bear market. Dennis Gralla, vice president of Alexander Summer says the market isn't tight quite the way it was six months ago. "The economic downturn has definitely started," says Gralla. "I've seen a lot of subleasing activity in all markets." Tom Stanton, a managing principal with the Staubach Cos. agrees. He says, "The Manhattan submarkets are loosening up a little bit."
As for big deals such as the World Trade Center, Patrick Murphy of Insignia/ESG notes, "It fetched a high price in a healthy market. All three bidders are smart, powerful companies, and all three are at the top of their game." He says of the negative CreditWatch, "Wall Street punishes uncertainty. Nobody was surprised when they came down the way they did."
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