“Betting on $2 Billion Sale: Will the Market Blanch?” read the New York Times headline. It was September 2010, and Taconic Investment Partners, Jamestown and New York state’s pension fund had just put 111 Eighth Avenue up for sale with a target price of $2 billion. The sellers hoped to make their money many times over – they had paid just $387 million for the gargantuan Chelsea property and three others in 1998 – while the market hoped a sale at even close to the ask would snap the market out of its malaise.
“There’s the market for those of us who stopped smoking a while ago,” Douglas Durst told the newspaper at the time, “and those who started all over again.”
The market may have blanched at the number, but Google didn’t. Just three months later, it agreed to buy the building for a then-record $1.8 billion, and investment-sales brokers, particularly the ones who breathe the rarefied air of Manhattan trophy towers, rejoiced. It was only the beginning for the search giant, which over the next seven years made Chelsea as much of an urban Googleplex as it possibly could: It took back space at the building from departing tenants, bought others out as quickly as it could, planted the first of several flags across the street at 75 Ninth Avenue (the Chelsea Market building), signed leases at SuperPier and 85 Tenth Avenue, and entered talks for a temp spread at Starrett-Lehigh.
But when you’re one of the world’s biggest companies and New York evolves from a satellite location to a key component of your recruitment plan, all that jockeying for space can get tiring. With its parent company Alphabet holding cash reserves in excess of $90 billion and its savings from the new tax plan expected to exceed $2 billion, it was time for a little real estate shopping.
Last week, as The Real Deal’s Mark Maurer first reported, Google entered contract to buy the Chelsea Market building for about $2.4 billion. That’s $600 million more than the 2010 deal, for a property that, even with the 300,000 square feet in unused air rights, is about half the size. Both the city’s leading investment-sales shops, CBRE and Cushman, got a piece of the action.
The purchase means that Google controls more than 4 million square feet in Chelsea, across two buildings already connected via an overhead walkway. Which means that when Google finally manages to extricate its remaining tenants at 111 Eighth and 75 Ninth, it can construct an urban tech campus the likes of which New York hasn’t yet seen – given its location in the heart of one of the city’s hippest neighborhoods, it would be a pretty good weapon to have in the perennial battle for top tech talent.
There are owners and opportunistic brokers who may see the price Google paid for 75 Ninth – in excess of $1,600 a foot for the mixed-use property – as the new benchmark. That would be a mistake. The average pension fund or REIT buyer is operating under a completely different set of motivations from a Google. Let outliers remain outliers.
Speaking of outliers: It’s not even a year since the deep-pocketed HNA Group paid north of $1,200 a foot, or $2.2 billion, for 245 Park Avenue. Those pockets quickly developed holes, leading the Chinese conglomerate to try every trick in the book – and then some – to meet its debt obligations.
Though it put other assets on the sale block, 245 Park was supposed to remain in its hands. But now, Bloomberg reports that the trophy skyscraper is also being shopped around, via HFF. The company has a $1.75 billion loan on the tower, and my bet is that it’ll have to take at least a small hit on what it paid if it’s in a hurry. HNA did receive a crucial lifeline Friday, in the form of a $3.2 billion credit facility from China Citic Bank, according to Reuters.
Compass rumpus: The week brought fresh allegations of corporate espionage and poaching against the country’s most highly-valued residential brokerage. Queens-centric Modern Spaces took Compass to court, alleging that the venture-backed firm’s “main corporate strategy appears to be willfully and unlawfully rely on undermining its competition.” Compass denied the allegations, the likes of which it’s had to deal with before: In 2015, it settled a similar suit with Corcoran Group.
Zillow’s golden pillow: Loathe it or lionize it, Premier Agent is an unbelievably effective cash cow, perhaps the fattest the real estate industry has ever seen. Zillow just reported that its revenue from the agent-advertising program jumped 26 percent year-over-year in 2017 to $761.6 million, propelling its overall revenue past $1 billion for the very first time.
“The market opportunity in front of us remains massive,” Zillow’s Spencer Rascoff said during the firm’s earnings call last week.
The cherubic CEO’s words portend further upheaval in the residential brokerage industry, which is both fighting and funding the listings giant.
“I’ve said this a lot but it bears repeating: Real estate agents are here to stay,” Greg Schwartz, Zillow’s chief business officer, wrote in October, in an apparent nod to the anxiety agents are feeling. Zillow’s role, he continued, “is to support and enable this great work you do with the products and technology we build.” Power to the people now, sure, but power to the platform, too.
(Paydirt is a weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick. Read more from Paydirt here.)