Met's move may impact race for Verizon building.
But the building's rising cost, driven up by feverish late-round competition, may not be the only thing that will thin the herd of bidders and help wrap the sale up.
The announcement that the MetLife building is up for sale may cause some Verizon bidders to reconsider the aggressiveness of their bids--and effectively take them out of the running--in an effort to reallocate financing towards the MetLife building's mammoth $1.8 billion estimated price tag.
And while the MetLife building's price will squeeze its cap rate tighter than the rush hour 4,5, and 6 subways that run below it, its enormous cash flow and stability assures guaranteed returns.
The Verizon building, on the other hand, will be nearly completely empty when its current owner vacates and will require a major campaign and investment of capital to lease it up and build out its spaces. Because its price is expected to be $500 per s/f, best-case scenario underwriting has put the building at 7% returns if it indeed can command premium rents.
"I think some of the bidders for the Verizon building might be getting cold feet because they see the MetLife building's core returns as a lot more attractive than iffy 7% returns from the Verizon building that are based on the condition that you can get $85 per s/f rents," said an insider working on the MetLife building's sale.
"If you can't project aggressive rents on the Verizon building, you're out of the bidding."
Although the two buildings are very different assets, what brings them into competition is that the expected profile of the bidders for both is similar.
Because the Verizon building will be nearly completely vacant upon its sale, leaving it with little or no cash flow, capital providers have been wary to finance individual investors reliant on significant leverage.
What has resulted is that nearly every one of the reported seven remaining bidders for Verizon's 6th Avenue building is an institutional investor with ample capital.
Boston Properties, SL Green, Tishman Speyer and Vornado all are rumored to be among the finalists.
These are likely the same investors who will be competing for the MetLife building.
"The Verizon building and the MetLife building are completely different buildings," said Studley investment sales broker Woody Heller,
"But the winning bidder for the Verizon building probably won't be buying the MetLife building."
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|Title Annotation:||Verizon Communications Inc.; MetLife Inc.|
|Publication:||Real Estate Weekly|
|Date:||Feb 23, 2005|
|Previous Article:||All's fair in yards war.|
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