So Mr. Macklowe saga concludes with the sale of the GM building to a group of investors. He lost significant chunk of his real estate empire thank to the credit crunch. Actually it was his doing by borrowing short and investing in long term assets. It is the worst funding strategy for any real estate transaction and its risks have been magnified by the credit crises.
The deal for the GM building has many implications for the commercial real estate sector:
- It is not the same as residential real estate. The dire scenarios will not materialize for commercial real estate.
- Sovereign wealth funds are ready to make deals and buy trophy buildings which should give commercial real estate some support.
- GM building valuation under duress fetched a record of $2.9 Billion and a record per square ft sale price of $1450.
- It validated my earlier posts of the value in high growth urban office and retail real estate. Most commercial real estate indexes have been stating that commercial real estate is declining but these figures are based on thin volume and does not reflect the economics of this market. so may be with this deal some the deal flow will return and we get a clearer picture of the true market values.
The transaction comes at a time where sellers are holding up selling due to low bids on their assets. The transaction might be a catalyst for buyers to up their bids a bit to entice sellers to do deals.