Bidding wars escalate

Real Estate Weekly, Feb 4, 1998

Other sales - such as the recent Sylvan Lawrence and Harry Helmsley portfolios, and some other residential portfolios - have been propelled by the desire to wind up estates and multiple partnerships.

William H. Stem, managing director of Sonnenblick-Goldman, said he doesn't think New Yorkers "really want to sell."

Instead, he said, his firm is having "a wonderful time all over the country," with multiple deals in cities like Miami and Washington, D.C., where fewer players compete.

Active players like Steven Witkoff, who now heads the Witkoff Group and has purchased at least a dozen high-profile buildings over the last two years, now say "I feel as if we've been marginalized. It's hard to find relationship deals, because they feel they have to competitively market them, but now and then we find them."

Witkoff has fumed to New Jersey and Philadelphia, seeking good product with upside.

"There's so much money out there, but no deals," agreed Ortiz of the city market. That's one reason why interest has been high on those deals that have been widely marketed.

Harry G. Heching, a real estate partner with Reid & Priest, said his clients are increasing their offers but still seem to be behind the market. Another client that buys mortgages nationally is finding the same holds true.

"The spreads are getting so narrow you have to hope the market will increase to allow you to make money. But then we are back to the Eighties and banking on appreciation rather than doing the deal on current returns," observed Heching.

One reason prices keep going up is that absorption is constant. The speculative building that was rampant in the late 1980's is non-existent in today's office market.

Speculative construction would tend to put a ceiling on the market, explained Heching, as when that speculative square footage comes on. "It tanks the market," he said.

"Now what's going up is pre-leased and there is excess demand, so as long as rents go up, prices will go up," he added.

The demand for property is as strong in the apartment sales market as it is in the commercial one. Many buildings today are coming on the market with asking prices reflecting eight to 10 times rent roll. That was certainly commonplace in the 1980's as well, but then new owners were banking on cooperative conversions.

Today, the operative word is condominium for the best buildings, while those that are buying rental buildings in good areas are hoping to merely up the rent rolls as units vacate through luxury decontrol measures and by attrition.

In the northern portions of Manhattan and the outer boroughs, rents have topped out around the same number they were several years ago - in the up to $800 range for the larger apartments.

Some are still finding and hoping to find deals at the four to six times rent roll price, but they are few and far between.

"It's difficult to say to someone `you are paying too much," said Jerry Swartz, a partner in Pergolis Swartz, who arranges debt on income-producing real estate

"If you are purchasing to fix it up, and improve, and re-rent that is one agenda. If you are purchasing to co-op or convert, you can afford to pay more," he agreed.