Bloomberg News

Beacon Said to Consider Alternatives for News Corp. Headquarters

November 02, 2011

Nov. 2 (Bloomberg) -- Beacon Capital Partners Inc. is considering alternatives to selling News Corp.’s headquarters in Manhattan after bids came in for less than its $1.9 billion target price, three people with knowledge of the matter said.

Potential buyers for the building, including Vornado Realty Trust and SL Green Realty Corp., were unwilling to meet Beacon’s terms, which would require investing about $950 million of new capital and assuming $950 million of debt, said the people, who asked not to be identified because the talks are private.

The stalled sale of 1211 Avenue of the Americas is a sign that investors are exercising greater caution with deals even in New York’s top-dollar office market, where prices recovered about two-thirds of the value lost in the recession only to plateau in the third quarter, Green Street Advisors Inc. said last month. Beacon, based in Boston, may seek to sell a stake in the 45-story skyscraper, or pull it from the market until pricing recovers, according to the people.

“Raising capital and doing deals got a lot harder in the last 60 days,” said Howard Michaels, chairman of Carlton Group Ltd., a New York-based real estate investment bank that has arranged financing for buildings similar to 1211 Avenue of the Americas. “You could have gotten pretty much any deal done in the first half of the year, but the second is proving more challenging.”

Third-Quarter Slowdown

Commercial real estate transactions slowed in the third quarter as concern deepened that Europe’s debt crisis may spread and the U.S. economy might enter another recession. A pullback in issuance of commercial-mortgage bonds reduced financing for some deals, Real Capital Analytics Inc., a New York-based real estate research firm, said last month.

Beacon’s plans were reported yesterday by Crain’s New York Business.

Alex McCallum, a spokesman for Beacon, declined to comment on the state of the offering. Roy March, chief executive officer of Beacon’s broker, Eastdil Secured Inc., didn’t immediately return a phone call.

Kimberly MacLeod, a Lehman spokeswoman, declined to comment. Teri Everett, a spokeswoman for News Corp., didn’t return a phone message.

Bidding for 1211 Avenue of the Americas topped out at about $1.65 billion in September, the newsletter Real Estate Finance Intelligence reported on Oct. 28, without saying where it got its information.

News Corp. Lease

Part of the problem rests with News Corp., Rupert Murdoch’s media empire which includes the Wall Street Journal, Fox News, Twentieth Century Fox and the New York Post, the people said. The company’s lease for about half the 1.8 million-square-foot (167,000-square-meter) Midtown tower expires in 2020, according to a report by Morningstar Inc. The expiration adds risk to a building purchase if News Corp. decides not to renew, according to the people.

The property’s financing was issued by Lehman Brothers Holdings Inc., whose bankruptcy filing deepened the 2008 financial crisis that dried up lending worldwide. The debt includes a $675 million securitized first mortgage and a $275 million higher-yield mezzanine loan, according to Morningstar.

The fixed interest rate on the first mortgage is 6.4 percent, according to data from Real Capital. Seven sales and refinancings of Manhattan office buildings this year had fixed rates ranging from 4 percent, for the Starrett-Lehigh Building in Chelsea, to 5.68 percent, for 7 Hanover Square in lower Manhattan.

The first mortgage and the mezzanine loan have early payment penalties, which would increase the cost of financing a purchase, one of the people with knowledge of the deal said. The senior mortgage matures in 2016, according to Morningstar.

Beacon paid $1.52 billion, or about $784 a square foot, when it bought the building in July 2006 from Jamestown, an Atlanta-based investment firm funded mainly by German investors.

--Editors: Christine Maurus, Daniel Taub

-0- Nov/01/2011 17:02 GMT

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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