AIG Headquarters Sale Makes Splash in Quiet Manhattan Investment Market

With rumors circulating of a sale price around $100 per square foot, the sale of the 66-story American International Group headquarters in Lower Manhattan likely set the bar for the biggest sale in the area market thus far in 2009.Youngwoo & Associates (YWA), a New York-based investment and development firm, together with Kumho Investment Bank (Kumho), entered into an agreement to acquire the AIG building, 70 Pine Street (pictured), and an adjacent office building, 72 Wall Street. The two buildings will total 1.4 million rentable square feet in the heart of Manhattan’s Financial District. YWA and a Kumho consortium went under contract on the buildings last week after a competitive sales process arranged by CB Richard Ellis Inc. The acquisition is expected to draw participation from a group of international financial firms and represents a major strategic initiative by the YWA/Kumho partnership to establish an investment program focused on Manhattan real estate opportunities, according to CB Richard Ellis information.  While terms for the deal were not disclosed, reports from various news outlets and among industry experts pegs the price around $100 million or about $100 per square foot.The deal signals the first big transaction in the city this year and may be a sign that financing and the capital markets may be coming around, again, to lending on deals, Massey Knakal managing director Ken Krasnow told CPN.“We’ve been seeing activity predominantly in the sub-$100 million market, and even more specifically in the sub-$50 million market where there are a tremendous amount of private investors who have the wherewithal to put up more equity,” Krasnow said. “There are portfolio lender type institutions still willing to lend in that comfort range.”In a post-Lehman time frame, the market has been frozen at the large transaction level mostly because of financing issues, Krasnow added.“But, just in the last month or so, we’ve clearly started to see a thawing in the general credit markets in the ability to obtain financing,” he added. “I don’t think there was ever a lack of demand with regard to large product in New York, I just think it was a combination of the terms and ability to get financing.”As investors are getting more comfortable that the market is not in freefall, Krasnow said he believes people will become more confident “that we’re not in a spiraling environment that we were for the last six months or so.”“It is a combination with the sellers’ expectations becoming more in-line with the current market conditions,” Krasnow said. “Sellers are becoming more realistic with regard to pricing and buyers are having more confidence in the pricing that they see out there. We’ve been seeing this materialize in the last month or so with the ability to obtain financing that really was just non-existent at the beginning of the year.”Those combinations have started to show signs of thawing out large scales in the sales markets, Krasnow said. “Overall, New York has been market that has been driven by large scale transactions. It is a market that people like to play in and there is no shortage of people that have been waiting on the sidelines to get back into the game. I think that with pricing firming up and financing becoming more available, you’ll see the sales volume increase in the second half of the this year more so than first half,” Krasnow said. “Financing is important. As the financial and capital markets start to ease up, volume and transactions will follow and pricing will become firmer and you’ll have enough of a base to place values to.”With a lack of sales over the last six months, Krasnow said it is hard to gauge what the going price per square foot has or should be for acquisitions like 70 Pine Street.“Without any transactions to gauge, it gave people hesitancy to make that plunge. You have nothing to compare (price per square foot) to,” he said. “Over the next few months, pricing and ranges of pricing will become more readily prevalent as sales increase. I believe we will start to see more volume in second half of the year. Certain assets like this one don’t come along every day. The assets that are more unique will generate activity.”