The Last Holdout

He's an architect!

I'm a little late posting this. The photo speaks for itself. Long story short, Trammell Crow offered the architect $2.75 million for the little townhouse when they were assembling the site. He turned it down, asking for significantly more. The developers just built around the townhouse. Now its all over. Equity just purchased the apartment building on the right.

(photo via)

Steve Eisman: SUBPRIME GOES TO COLLEGE

Here is Steve Eisman's speech delivered at the Ira Sohn Investment Research Conference in May:

EismanSohnConference

(via Mother Jones)

A Trend I don't Appreciate

The Journal reported this week that shopping centers are filling up their vacant spaces with for profit colleges:

The schools, eager to keep up with demand from out-of-work adults seeking new skills in the health-care, automotive and technical trades, are renting empty mall anchor stores, grocery stores and space in office buildings to house their classrooms and training facilities. Though there are some obstacles to moving in, the schools are often welcomed as tenants, picking up hundreds of thousands of empty square feet and bringing new customers to nearby shops.

While it's great that shopping center owners are getting some revenue for the vacancies, I certainly hope this trend is temporary. Investors tend to stay away from centers that have a gym, an ice rink, or a vocational school. In this case, it's not just the parking issue that bothers me, what troubles me more is the "for profit schools" business model.

The "for profit schools" industry is subsidized by the federal government. The revenues for these schools come from tax payer funded financial aids. According to this NPR story, the amount of federal financial aid for students at for profit schools has exploded to $27 billion. While only 7% of of all college students attend for profit schools, they receive about a quarter of all federal financial aid, and represent almost half of the students who default on their loans.

These for profit schools typically charge very high tuitions. A one-year program for a culinary school could cost as much as $40,000. There is no evidence that these schools are providing high quality education, and what makes it worse is that students often can not find high-paying jobs after graduation to justify the high tuition costs. Listen to this Marketplace story for some of the issues facing for profit schools. My favorite line from Pauline Abernathy with the nonprofit Institute for College Access and Success: "We've seen some really troubling signs that taxpayers are subsidizing programs that over-promise and under-deliver."

No kidding. One of the biggest critics of the for profit schools is hedge fund manager Steve Eisman, who shorted the subprime mortgages and was profiled in The Big Short. His take on for profit colleges:

"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong," Eisman said. "The for-profit education industry has proven equal to the task."

Steve Eisman is testifying at today's Senate Hearing - Emerging Risk? An Overview of the Federal Investment in For-Profit Education.

Beige Book: CRE Remained Weak

From FRB:

Commercial real estate activity generally remained weak. Office, industrial, and retail vacancy rates continued to drift upward in many Districts putting downward pressure on rents. However, lower rents were said to have led to an increase in leasing activity in New York, Philadelphia, Richmond, Kansas City, Dallas, and San Francisco. The elevated inventory of existing properties for sale or rent continued to weigh on new private nonresidential construction. However, stronger industrial demand was noted in several Districts. Public construction increased in Philadelphia, Cleveland, and Chicago, but slowed in Minneapolis.

Marketwise Blog

I recently started contributing to the new Marketwise blog. Go check it out, especially if you crave for opinionated posts.

CNBC: The REIT Stuff

Steve Roth, chairman of Vornado Realty Trust and Richard LeFrak, The LeFrak Organization provide insight on the commercial real estate sector.

GE Real Estate To Cut its CRE Portfolio in Half

From WSJ:

GE Capital holds an $80 billion portfolio of assets like office and apartment buildings, as well as loans secured by commercial property. Mike Neal, chief executive of GE Capital and a GE vice chairman, on Friday said the firm aims to cut that portfolio to $40 billion and to shift its composition more toward loans and away from ownership stakes.

While he didn't give an exact time frame for the goal, the comments further clarified GE Capital's plans for a troubled business. The market value of commercial buildings the company owns has fallen by nearly 40%, or $7 billion, since 2008 GE estimates. The company also has lost more than $1.6 billion since 2008 in its commercial real-estate debt portfolio, which includes loans to others to buy or develop properties.

You can watch or listen to Mike Neal's entire presentation at the Sanford C. Bernstein Strategic Decisions Conference 2010 here. The PowerPoint slides are attached below:
Ge Webcast Presentation 06042010

Repost: Who is Joseph Cayre?

I wrote the post below in early 2008 when the GM building in New York was for sale. Since then, it continues to be one of the most popular posts. Most recently in April this year, Joseph Cayre's Midtown Holdings and its Israeli partners closed the $350 million sale-leaseback of the HSBC tower at 452 Fifth Avenue in Manhattan. I've also posted the comments at the end.

The Early Years: Joseph J. Cayre was born in 1941, in Miami, Florida. From South Florida CEO: He attended North Beach Elementary School, Northwest Junior High and Miami Beach High School. A few years after he graduated from Miami Beach High, he moved to New York. Through a friend who worked in management there, Cayre landed a job at Columbia Records International overseeing sales of Spanish-language music. He was only 20 years old at the time. Cayre took to the business, and soon wound up running his own company, called Caytronics, which went on to become a leading Spanish-language record and music publishing company during the 1970s. Cayre sold that company to RCA Records for $125 million, and he retired when was 39 years old. The retirement did not last long. By the early 1980s, Cayre was getting ready to parlay his success in recorded music into a profitable video business. He started GoodTimes Entertainment in 1984. The start-up of GoodTimes led Cayre to a fateful meeting with Sam Walton, legendary founder of retail colossus Wal-Mart. The meeting resulted in GoodTimes Entertainment becoming the sole distributor of videos to Wal-Mart for 10 years. After running GoodTimes for most of the succeeding 10 years, Cayre finally cashed in his equity and sold it in 2003 for $280 million to Quadrangle Capital Partners.

Venturing into Real Estate: Around the time he founded GoodTimes, Cayre had started diversifying his personal net worth by investing in real estate, initially with a partner in the Washington market. As the commercial real estate market nationwide went south during the late 1980s, a cold call led Cayre and his two brothers to invest in more than 100 properties in Manhattan that a big savings bank foreclosed on. According to Cayre, he paid 1 percent down, no interest for 5 years, no principal for 2 years.

Midtown Equities LLC: From Miami Sun Post: Joseph Cayre is the chairman of Midtown Equities, a family-owned and -operated real estate investment company based in New York City. The company owns properties in Washington, D.C., New Jersey, New York, as well as Florida. Other principals of Midtown Equities include his son Jack Cayre, Michael Samuels, and Daniel Pfeffer.

World Trade Center: Joseph Cayre's most well-known asset is an interest in the 99-year-lease to the former World Trade Center property. Six weeks before the 9/11 attack in 2001, NY developer Larry Silverstein and investors Lloyd Goldman and Joseph Cayre bought the 99-year leasehold of the World Trade Center. From The New York Times, Mr. Silverstein put up about $14 million of the $800 million in fees and down payments. He raised about $110 million from the Goldman real estate family and Joseph Cayre. The group borrowed $563 million from GMAC. The deal gave the Silverstein group control of 10.6 million square feet of WTC office space. The Port Authority, which built and owned the trade center, valued the original deal at $3.2 billion. Two years after the attack, the group got back $98 million of the $125 million initial equity they invested. (also see "911 review")

Sears Tower: In March 2004, Joseph Cayre, along with NY investors Lloyd Goldman and Jeffrey Feil bought the Chicago Landmark Sears Tower from MetLife for $835 million. MetLife said it realized an after-tax gain of $90 million on the deal. ("WSJ")

Other Real Estate Deals: Joseph Cayre signed on as a development partner for the 56-acre Buena Vista Yards in Miami Florida. The $1.2 billion project includes 600,000 square feet of retail space, 3,000 condo lofts and 350 apartment units.(Read more here, here and here.) Cayre's Midtown Equities is also developing the Steel Point Development in Bridgeport, CT, a $1.5 billion, 52-acre mixed use project consisting of 3,500 residential units, 1.1 million sf of retail space, 160,000 sf of office space, 400-slip marina and 12 acres of streets and roads. (Read more here.)

Joseph Cayre and Douglas Jemal: In September 2006, Joseph Cayre testified in the bribery and conspiracy trial of one of the most prominent DC developers Douglas Jemal. From Washington Business Journal: Joseph Cayre says he's made more than $100 million with Jemal, more money than he'd made on any other individual deal. He says he and Jemal still own more than half a dozen properties together, with his share totaling another $100 million. Cayre told the jury that he would do more deals with Jemal if the developer put up collateral. When pressed by prosecutors whether Cayre would put money into a deal based on Jemal's word, Cayre said: "If he gave me his word he would give me some collateral." Jemal was eventually acquitted of the bribery charge and convicted of one lesser count of wire fraud.


6 comments:

Anonymous said...
i would never ever do business with joe cayre. read the lawsuits and other articles on him.

Anonymous said...
This is an unfair criticism.
Joe Cayre is an ethical business man, and an honest person. Any completely self-made individual, having negotiated and transacted 50years of business will, unavoidably, be criticized by a few. Cayre is modest and quiet, never subscribing to self-promotion. Unfortunately those few critics of his are the opposite.

Anonymous said...
Interesting comments about Joe Cayre, frankly they might be accurate. However, the same accolades cannot be said for his children Jack and Stephen Cayre. Quite possibly the most intellectually dishonest men in NYC real estate, a shame on the Cayre name.

Anonymous said...
Realize that in the Syrian Jewish community, the children are named after the grandparents. Therefore there are many jack and steven cayres. However joes sons, jack an steven, are two of the kindest, most honest, most honorable, most down to earth grounded people there are. They could all be flying the world in private jets with Paris Hilton yet they choose to work hard and keep a low profile doing it. Shame on you people who are attacking people you don't know. Would you want to be across the table from them? Probably not, but thats because you couldn't get to their table to begin with but also llike every other shrewd super successful businesspeople, they have the resources and the intelligence to beat anyone. Where I come from you win awards for this. You aren't criticized.

Anonymous said...
it is few people who like him not few who don't. lastly, he is a showoff -- hardly a quiet modest man. the report leftout GT Interactive and other of his failed companies and the many burned investors. do your own due diligence.

Anonymous said...
He is a wonderful man all I can say anonomously, is that he helps children for medical reasons and that is not a show off!!

The Canadians Are Here

Unlike here in Northeast, especially New York and Washington DC, where private families still control a lot of the commercial real estate projects, the Canadian commercial real estate market is completely institutionalized. Pension funds and a hand of of REITs own pretty much all commercial real estate. Benefiting from a strong economy, armed with a strong Canadian dollar, well-capitalized Canadian investors are slowly entering the US market with several noticeable investments of late. Below is a round up of the major players and some of the investments made recently.

1. Oxford Properties Group: The $475 million equity investment made by Oxford last week in New York Developer Related Companies' Hudson Yards redevelopment project is the latest big investment made by a Canadian investor. Backed by OMERS, one of Canada's largest pension plans with net assets of $48 billion, Oxford is a fully integrated real estate owner, developer, operator and manager of a $15 billion global real estate portfolio.

2. CPP Investment Board: In early May, The Canadian Pension Plan Investment Board ("CCPIB") acquired a 45% interest in the McGraw-Hill building from SL Green Realty Corp, and formed a JV with SL Green to acquire a 45% ownership stake in 600 Lexington Avenue. The two prime Manhattan office assets have a combined value of $1.45 billion. CCPIB's total consideration is approximately $663 million. Based in Toronto, The CPP Investment Board invests the $127.6 billion assets of the Canadian Pension Plan. Its real estate portfolio is approximately $7 billion.

In April, CPPIB also formed a JV with Kimco Realty to acquire prime neighborhood shopping centers throughout the U.S. The initial investment was $370 million, a 45% interest of five former PL Retail properties which Kimco purchased during the fourth quarter of 2009

3. RioCan Real Estate Investment Trust: Canada's largest retail REIT with a market cap of approximately CDN$7.8 billion formed a $180 million JV agreement with Port Washington, N.Y based Cedar Shopping Center in late 2009. In addition, last month RioCan formed a $138 million 80/20 JV with Inland Western Retail Real Estate Trust to acquire eight retail properties in Texas.

Other notable plays include Bental LP, a fully integrated real estate advisor and investment management firm backed by SITQ and the British Columbia Investment Management Corporation. Bental owns Seattle based Kenney Associates Real Estate Counsel and DC based Landon Butler & Company.

And lastly, of course everyone should be familiar with the Canadian company Brookfield Properties.