Stacey Corso is editor of Real Estate New York
NEW YORK CITY-Who has more staying power in New York City: publicly held real estate companies or private families? It depends on whom you're asking. "We have as a private company a different degree of flexibility and ease in which we can function. Our response time and reaction time can be quicker," William Macklowe told those in attendance at an AREW luncheon held May 5 at the University Club on Park Avenue.
"Regardless of what we paid for the General Motors Building, we know what our goals are--and we don't have to answer to any analysts," he said. "We can bury our return until we are really able to effectuate that investment," he said of the record-breaking sale.
The biggest challenge facing privately held W&M Properties, led by chairman Peter L. Malkin, is to "not buy buildings when they are too expensive," he said. Instead, "we tend to buy at the end of what is a very exciting period."
Also, W&M's challenge is to resist selling its assets, which the firm generally holds for the long term. Malkin used the firm's recent sale of two buildings within the International Toy Center as an example. The company purchased 200 Fifth Ave. for $5 million back in 1951. "We refinanced the mortgage to buy 1107 Broadway and we just sold them both for $355 million. The investment returns were phenomenal," Malkin said. "Our family's experience during the Depression and WWII was that was properties could be purchased only by insurance companies, banks and a few private companies. The rate of return on a prime office property in those days was 15% free and clear because there was no competition," Malkin said. "We were able to buy property with very little competition and most of it was done, not by competitive auction, but by direct negotiation. Returns were higher, competition was less sources of money were very different. Wall Street was really not in the game at all."
"The challenge for us is to find those types of buildings, like the Toy Building," reported Michael D. Fascitelli, president of publicly traded REIT Vornado Realty Trust, "or to find out what will be hot 10 years from now."
Although legislation to create real estate investment trusts was passed in 1960 during the Eisenhower administration, Refits started gaining leverage on Wall Street in the 1980s, according to Fascitelli, which then began to change the acquisition strategies employed by property owners.
"In the late 1980s, you saw the commercial mortgage market emerge," Fascitelli said. At that time, the total market capitalization of Refits in 1992 was less than $10 billion. Basically the REIT market has grown to $300 billion, which is still relatively small in the capital markets, Fascitelli noted.
Currently $200 billion of securitized debt exists, he added. Fascitelli said the debt market dwindled after the problems of the early 1990s, but then exploded again during the late 1990s." Today the debt and equity markets are flooded with capital."Peter is one of the founders of the syndication business," he continued. "And that's come back. People (firms) like Wells and others are syndicates. Its' not that dissimilar to some of the old syndications dating back to the 1950s, when Peter Malkin entered the real estate syndication and property acquisition game. "It's interesting what goes around comes around because that is back in vogue today."
"There are no bad deals, only bad timing," Macklowe said. "While location, location, location is a wonderful adage in real estate, staying power, conviction and endurance win the day. The Toy Building is testament to the vagaries of these cycles. And I think that is a fundamental difference of a public and private company."
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