REIT or trophy: what's WTC worth?

Real Estate Weekly, May 17, 1995 by Lois Weiss

The stores are now open on Saturdays and while leases don't require the stores to open on Sunday, Rossi said about a third are open.

Heller said someone might buy it because they have an enormous ego. "You might buy it because Downtown New York is at a low cycle and its a tremendous opportunity to buy quality products with unequal name recognition at a discount. There is tremendous market arbitrage in buying Downtown today," he added.

Andrew Gerringer, senior vice president of Douglas Elliman, predicts the buyer would have to be some kind of institutional player. "It's such a complex situation it probably will take a couple of years to figure out what they are selling," he observed. "It's a property that has to be held for a long time. It's not something you can sell right way and will be interesting to see what happens. It could be a REIT itself, like the Rockefeller Center."

Peter Hauspurg, chairman of Eastern Consolidated Properties, also believes its a good candidate for a securitization. "It certainly will attract enormous attention," he said. "It would be hard for one individual to commit the equity portion, which would be $250 to $400 million. It could be a pension fund, but it would be one large bucket to have a lot of apples in and a lot would shy away. Who knows what the deferred maintenance is?" he wondered. "The bill going forward would be enormous."

James D. Kuhn, chairman of Newmark & Co., said the deal will have to be in excess of a billion dollars. "The first question would be if is it all cash or are they taking something back," he wondered. He also believes a massive securitization could be one way for the Port Authority to obtain some money.

Mark O. Decker, president of the National Association of Real Estate Investment Trusts, said there aren't many single asset REITs. "It wouldn't be the strangest thing we've seen," he said. "While it doesn't fit the perfect mold for a REIT - because part of the appeal of a REIT is the diversity - I wouldn't say we'll never see it, but it will be some time before we see the Brooklyn Bridge or tollbooths owned as a REIT."

Decker said REITs like to acquire office properties at 30 to 60 cents on replacement costs. "Unless there is an incredible cash flow or isn't at 100 percent of cash flow and the REIT can add value and grow it as an asset, it doesn't jump into my mind as a REIT asset. But that office market is fairly fluid and is a buyer's market, so it very well might be a REIT asset. If it's owned by a government entity, it is undermanaged for sure," he added.

The Vista Hotel is owned by the Port Authority and is operated by Hilton International with a lease that one insider said, "doesn't end in our lifetime." There are both incentive clauses and performance guidelines that have to be met, as well, that give the Port Authority the right to terminate the lease.

Rossi said the hotel was renovated and the arrangement re-negotiated with Hilton, making it more favorable and attractive to a third-party buyer. "We've been paving the way to spin off that building," he said.