Wall Street Journal

"I honestly have no idea what these properties are worth" in the current market, Dan Fasulo, managing director of Real Capital Analytics, tells GlobeSt.com. He notes that the cap rate for HSBC's long-rumored sale-leaseback of its headquarters at 452 Fifth Ave. would probably be in the range of 8% to 9% if it goes through, "and that's where I'd put the ballpark for these assets as well."

At any rate, that's where Fasulo would rank the values of One Chase Plaza and Four New York Plaza, also in the Financial District. For the others, which range from the 865,000-square-foot former Washington Mutual headquarters in Seattle to a 46,000-square-foot office property in Utah, "It's a crapshoot. That's one of the reasons there have been so few transactions--buyers and sellers can't get together and agree on a price."

As for buyers setting price expectations with so few comparables as reference points, Fasulo says, "The investor has to take a little bit of a leap of faith and be comfortable with the yields they'll achieve, as well as getting their arms around the credit quality of the tenants." He adds that in London, a hard-hit office market comparable to Manhattan in terms of its tenant base, "they've had about 40 major office property sales in the past several months. They're all well-leased properties and the cap rates are coming in between 7% and 8%."

By contrast, Manhattan has seen just eight major office sales transactions so far this year, according to RCA data. Fasulo chalks up the difference to momentum. "It feeds on itself," he says. "Once the first handful of transactions takes place, sellers say, 'okay, that's the market, you can have my building for x amount.' The buyers feel comfortable that there are comps to work with and the lenders feel comfortable because there are other transactions happening at these price levels."

In contrast to some of the distressed office property sales seen in Manhattan this year, a deal for 452 Fifth or the two JPMorgan towers would represent a sale of stabilized assets. Fasulo says such transactions, along with S.L. Green Realty Corp's sale of a 49.5% interest in 485 Lexington Ave. earlier this week, will help establish the market here.

Despite recent developments such as Tuesday's announcement by Brookfield that it was forming a $4-billion investment consortium, Fasulo doesn't see institutional buyers going after the JPMorgan portfolio. "It's not the institutional players chasing these deals," he says. "It's mostly high-net-worth individuals who jump at the opportunity to park their money in inflation-protected assets paying 8% a year. Where else can you get that?" He adds that the properties will probably be sold off in several "one-off" deals; a buy of the entire portfolio at once is unlikely.

Helping the marketability of the JPMorgan portfolio is the likelihood that the bank will end up leasing back much of the space in its former properties, thus ensuring their income streams. A source confirms the WSJ speculation that JPMorgan plans to continue occupying much of the square footage in the 23-property portfolio.

However, Fasulo points out, "JPMorgan doesn't need all of the space anymore," so he feels the company will probably look to structure leasebacks that allow it to wind down operations over time at certain locations. Many of these properties came into JPMorgan's possession following its acquisitions last year of Bear Stearns and WaMu, including 383 Madison Ave., which is now the US headquarters of its investment banking operations. In total, JPMorgan currently owns or leases 75 million square feet of office and retail space across the US, according to its most recent annual report.

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