Real News‎ > ‎2014‎ > ‎September 2014‎ > ‎

18th August 2014

Singapore Real Estate

New ECs versus private condos: price gap widening

Analysts expect the launch of three executive condominium projects in the coming weeks to give the relatively quiet property market a much needed boost. Chestertons says the buzz could potentially spur other developers to roll out more mass market projects.

Source: Channel News Asia / Business

SINGAPORE: Developers of executive condominiums (ECs) had been enjoying roaring business, up until measures introduced by the Government last year curbed demand and eased the pace of new project launches.

The measures included a rule that restricts developers from selling units until 15 months from the award of the sites or after foundation works are completed. In addition, the Mortgage Servicing Ratio (MSR) for housing loans granted by banks for EC units bought directly from property developers was also capped at 30 per cent of a borrower's gross monthly income.

Bellewoods at Woodlands Avenue 5 will be first off the blocks and home owners can apply for a unit online starting from Sep 27. That is closely followed by two other project launches - Lake Life at Yuan Ching Road and Bellewaters at Anchorvale Crescent. Together, the three projects will inject more than 1,700 EC units - 561 units at Bellewoods, 546 units for Lake Life and 651 units at Bellewaters - into the market.

Analysts said the new developments will excite the market after nearly a year without an EC launch.

Mr Donald Han, managing director of Chestertons, said: "The EC projects to be launched in the next month or so will create a spur factor for other developers to join in the momentum and to launch more mass market projects, which could potentially see a trickling effect on volume of sales coming back to the marketplace at least for the fourth quarter of 2014."

Still, Qingjian Realty, developer of Bellewoods and Bellewaters, said buying activity may not reach the fever pitch seen in previous years. "The strong sell-out demand is not coming back. Now, the market is in a more stable state and it will take a longer time to sell EC units," said Mr Li Jun, general manager at Qingjian Realty.

"EC prices are hovering around S$800 per square foot (psf) while private home prices are still averaging above S$1,000 psf. There's still a S$200 difference," he pointed out.

Qingjian said prices for units at its two new EC projects will average between S$750 and S$820 psf.

Due to tighter loan restrictions, the developer expects more buyers to tap the deferred payment scheme, that enables buyers to start servicing their loans upon the completion of project. Qingjian said that on average, about 10 to 15 per cent of buyers made use of the scheme in the purchase of units at their earlier EC projects, which included RiverParc Residence, Waterbay and Ecopolitan.

Marketing activity has started for Lake Life at Yuan Ching Road, the EC project with a record land price at S$418 psf per plot ratio. It is the first EC launch in Jurong in 17 years.

An Evia-led consortium beat 15 other bidders to the site in the land tender, and it is now aiming to garner 2,000 e-applications for the project. "There's a lot of pent up demand, especially for Jurong. It's been 17 years since the last executive condominium launch, the entire transformation of Jurong has actually created a lot more interest in the region," said Mr Vincent Ong, managing partner at Evia Real Estate.

Among the offerings, Evia said Lake Life will provide subsidised or free tennis lessons, cooking classes as well as a tie-up with True Fitness. There will also be smart home automation features at Lake Life.

Mr Ong added: "It is our objective to be part of this smart city initiative. Pending LTA approval, we would like to see our buyers being provided with a free shuttle - an electric vehicle, autonomous without a driver, which travels to and fro between the condo and the MRT station."

Analysts said the three EC launches could potentially affect private home sales at nearby projects as their pool of buyers overlap, in particular, those upgrading from HDB flats.

- CNA/ac

Big Hotel back on market - now with leaseback deal

Asking price is expected to be S$270m-S$280m

Source: Business Times / Property

[SINGAPORE] Big Hotel along Middle Road is back on the market - this time on a sale-and-leaseback arrangement.

It is being offered through an expressions of interest (EOI) exercise being conducted by JLL. Submissions are due on Oct 28.

The expected asking price for the 308-room freehold hotel, which opened in May last year, is understood to be between S$270 million and S$280 million, translating into between S$877,000 and S$909,000 per room.

This is more than the S$260 million or S$844,000-per-room price tag for the property in July last year, when it was offered through an EOI exercise conducted by Colliers.

Freehold boutique hotel in Middle Road up for sale

Source: Straits Times / Money

THE boutique BIG Hotel, at the corner of Middle Road and Bencoolen Street, is up for sale.

The 308-room hotel, on freehold title, opened in May last year after an extensive renovation of the former Prime Centre commercial building.

It achieved occupancy levels of 90 per cent after just 12 months of operation, said JLL, which has been appointed marketing agent. 

The hotel is being sold with the existing operator in place to continue managing it under the BIG Hotel brand.

It is being sold on a leaseback structure, with a fixed guaranteed income being paid to the buyer.

"This creates an opportunity for buyers to not only secure a freehold asset with a guaranteed return, but also to obtain a foothold into the highly competitive hotel industry in Singapore," JLL said in a statement yesterday.

Following the success of the BIG Hotel brand since its launch, there are plans to roll out the brand across other markets in the region in the near future, it added.

The period of the leaseback is flexible and dependent on the buyer's requirements, but it will be a minimum of three years.

JLL Singapore's regional director of investments Anthony Barr said BIG Hotel's location will achieve its full potential once both the Rochor and Bencoolen MRT stations are up and running in 2016 and 2017 respectively.

"The area already has a vibrant feel due to the surrounding arts and education precinct, and new developments in the area will further add to its appeal as a destination for hotel users," he said.

Mr Mike Batchelor, the Asia managing director of JLL Hotels and Hospitality Group, noted that Singapore remains one of the most sought after hotel investment destinations in the region, with a record US$2.37 billion (S$2.98 billion) worth of hotels traded last year.

He added that BIG Hotel's freehold title, central location and attractive deal structuring is expected to generate strong interest across a wide investor base, such as from institutional investors, private buyers and family offices, he added.

"Similar opportunities in Singapore are extremely rare," he said.

The hotel will be sold by expressions of interest, and submissions are due on Oct 28.

-By Yasmine Yahya

Bleak private home sales evoke memories of 2008

Number of units unsold at 15.1% last month, worse than in August 2008

Source: Straits Times / Top of The News

THE upscale Skyline @ Orchard Boulevard sums up the state of the private home market.

In the first eight months of the year, the 40-unit condominium has sold just one unit, leaving 34 units unsold.

The single sale in January was made at $3,362 per sq ft (psf) - far below the starting price of $3,900 psf at its June 2010 launch. 

When The Straits Times visited on Tuesday, its sales gallery was completely deserted. This underscores the fact that, by some indicators, the market is in worse shape than it was in the run-up to the 2008 global financial crisis which hit in October that year.

The number of units launched but unsold rose to 15.1 per cent on Aug 31, worse than the 11.8 per cent in August 2008.

Vacancy rates at completed private residential projects are also higher, at 7.1 per cent at the end of the second quarter versus 6.1 per cent in 2008 at the same time.

Property consultants expect vacancy rates to rise, given a deluge of completed projects in the pipeline and the limited number of expats looking to rent.

"Most expats are also no longer on expatriate packages... While on local packages, they are more budget conscious and may even combine with others to lease a unit. The demand dynamics for rentals have changed," said CBRE research head Desmond Sim.

Some new completed projects may even see occupancy rates of just 60 per cent, versus the usual more than 90 per cent, said SLP International research head Nicholas Mak.

The low point of the year has been last month's private home sales figures, released on Monday, with just 432 units moved.

Buyer sentiment is bleak.

In central Singapore, projects such as Ardmore 3, Devonshire 8, Ferra at Leonie Hill, One Balmoral and TwentyOne Angullia Park had each sold fewer than 10 units as at Aug 31 - despite being on the market for more than a year.

Even in the suburbs, projects such as E Maison in Braddell Road and Singa Hills in Bedok had sold fewer than a quarter of their units at the end of last month.

Still, monthly sales for the past six months are generally above the corresponding months in 2008, and better than the worst of the global financial crisis, when monthly sales were just 105 in January 2009.

But underlying demand back then may still have been better than now, said Century 21 chief executive Ku Swee Yong.

In 2008, demand came from people flush with cash from collective sales in 2007, who needed a new home; but that element is gone today.

The market recovered fast as more foreigners started taking up permanent residency here, looking to Singapore as a safe haven. But cooling measures hit foreign buyers, Mr Ku said.

The total value of sales today is also likely lower given the greater popularity of one-bedroom units, he added.

"Moving into a time of high vacancies and uncertain yields, investors are expecting and will wait for lower prices."

Said CBRE's Mr Sim: "It will take time for the market to reach equilibrium as well as let the long-term effects of cooling measures take over."

-By Rennie Whang

Property 2014

Source: Straits Times (Pg 31 – 74)

Real Estate Companies' Brief

Singapore Retail Reits

Source: Business Times / Singapore Markets


LABOUR shortage and flagging retail sales will heighten retailers' consolidation efforts in the year ahead. As a result of low unemployment and tightening foreign labour policies, retailers are faced with escalating costs and labour shortages, which are eating into profitability and limiting their expansion plans.

With further foreign labour restrictions coming in July 2015, we do not see an end to cost pressures in the immediate term.

Starhill Global Reit refinances RM330m senior MTNs

Funding comes from proceeds of new five-year secured and fixed-rate senior MTN

Source: Business Times / Companies

STARHILL Global Real Estate Investment Trust (SGReit) has refinanced RM330 million (S$129.4 million) senior medium term notes (MTNs) at a lower interest cost.

This was funded largely by the proceeds from a new five-year secured and fixed-rate senior MTN, issued under Ara Bintang Berhad's existing asset-backed MTN programme of up to RM1.25 billion.

Ara Bintang Berhad is a special-purpose vehicle incorporated for the purpose of securitising SGReit's Malaysia properties. CIMB Investment Bank Berhad has been appointed as the lead manager for the issue of the new senior MTN.

The manager of SGReit said that the refinancing was undertaken as part of its "proactive capital management strategy".

-By Kelly Tay

Global Economy & Global Real Estate

Troubled California hotel in US$185m luxury makeover

Developer turning former Miramar site into beach resort and bungalows

Source: Business Times / Property

[LOS ANGELES] Rick Caruso, a Los Angeles shopping-mall developer, plans to spend about US$185 million to rebuild a Southern California seaside hotel with a troubled past into a luxury getaway.

The 170-room Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara, will have such amenities as a beach club, spa, restaurants and two swimming pools, said Mr Caruso, founder of closely held developer Caruso Affiliated. The site's former hotel, known as Miramar by the Sea, has already been demolished.

Mr Caruso bought the property in 2007 from H Ty Warner, the billionaire creator of Beanie Babies plush toys and owner of the Four Seasons Hotel New York. The California hotel, on about six hectares, had been out of service for more than a decade as past revival efforts were hampered by local opposition to development and the property market's crash. Former owners include hotelier Ian Schrager.

"It's one of the most unique and irreplaceable pieces of real estate on the coast of California," Mr Caruso said at the Grove, his town square-style retail centre in Los Angeles. "This will be an escape for visitors and locals alike."

-From Los Angeles, US

Manhattan's Trump Soho facing foreclosure

Source: Business Times / Property

[NEW YORK] Lower Manhattan's Trump Soho hotel-condominium tower, which has struggled to find buyers since sales started in 2007, is facing foreclosure.

CIM Group, a Los Angeles-based investment firm that holds a loan on the property, is planning to take control of the building and has hired brokerage Eastdil Secured LLC to handle the auction of the remaining condos, according to a person with knowledge of the matter, who asked not to be named because the details aren't public.

Developed by the Sapir Organization and Bayrock Group LLC, the 46-story tower houses condos that may only be used by their owners for 120 days of a calendar year.

For the rest of the time, they're offered as hotel rooms, with owners sharing in the rental revenue. Donald Trump's Trump Organization manages the hotel and licenses its name to the property, and has no equity stake in the tower.

-From New York, US

Independence may hurt Scottish housing market

Repaying pound- denominated loans in foreign currency may lead to default

Source: Business Times / Property

[LONDON] A vote in favour of Scottish independence on Friday threatens to weigh down a booming housing market should thousands of homeowners become debtors of foreign lenders.

Political leaders in the UK are sparring over whether an independent Scotland would keep the pound, with the outcome having major consequences for the economy and housing. If Scottish homeowners eventually have to repay pound-denominated loans in a foreign currency, they would face the risk of higher costs and possible default.

Prime Minister David Cameron warned on Sept 14 that the break-up would be akin to a "painful divorce", and said that the UK will not share its currency with an independent Scotland. Independence leaders dismiss the government's threat, insisting that Scotland and the rest of the UK would form a currency union to benefit both nations.

"A Scotland outside the UK would open the floodgates to the real questions of currency, exchange rates, mortgage risk and property taxation," Gordon Fowlis, regional managing director of LSL Property Service's Your Move unit, said in a statement. "Many mortgage holders could see their loan-to-value shoot up as the implications of borrowing from a bank in a foreign country are unmasked."

-From London, UK

China's property trusts wary of funding projects

US$9.1b in bonds and loans maturing by year-end

Source: Business Times / Property

[SHANGHAI] Property trusts are funnelling the least amount of money into Chinese developers in almost five years as maturing debt balloons, escalating default concerns.

Issuance of trusts for real-estate projects, which target wealthy individuals, slid to 30 billion yuan (S$6.17 billion) this quarter from 67.8 billion yuan in the three months to June 30, the least since the start of 2010, data from research firm Use Trust show. Borrowing costs are rising as developers face US$9.1 billion in bonds and loans maturing by year-end. Hubei Fuxin Science & Technology sold AA rated securities with a 9.2 per cent coupon on Aug 26, above the 6.38 per cent average yield for similar-rated notes.

Cash from operations are also facing a squeeze as home sales fell 10.9 per cent in the first eight months of the year in the world's second-largest economy, which is forecast by the government to expand at the slowest pace in 24 years. Standard & Poor's sees a risk that a developer may default in the coming 12 months, highlighting weak earnings at Renhe Commercial Holdings and Glorious Property Holdings.

"Given the bad housing sales, fewer trust companies are willing to help property companies raise money," said Li Ning, a bond analyst in Shanghai at Haitong Securities, the nation's second-biggest brokerage. "Default risks are rising rapidly before so much debt is due next quarter." Glorious Property's US$300 million of 13 per cent notes due October 2015 yield 22.62 per cent compared with 19.75 per cent on Jan 1, Bloomberg-compiled prices show. Renhe Commercial, a developer of underground shopping centres, has US$300 million of 11.75 per cent bonds due in May, which yield 39.88 per cent.

-From Shanghai, China

Norway to invest in US office buildings

Source: Business Times / Property

[SEATTLE] Norway's sovereign-wealth fund, the world's largest, agreed to buy stakes in three prime US office buildings for about US$1.5 billion, extending a real estate shopping spree as it seeks higher-yielding assets.

Affiliates of Norges Bank Investment Management, which manages the Norwegian government's global pension fund, is acquiring 45 per cent interests in the buildings from Boston Properties Inc, the seller said on Tuesday in a statement. The properties are 601 Lexington Ave in New York,the Atlantic Wharf Office Building and 100 Federal Street in Boston.

The fund has been expanding its holdings of high-quality properties in coastal cities. Norway's US$880 billion wealth fund formed a real estate group in July that will invest almost US$10 billion a year over the next three years. The fund, whose holdings include properties on London's Regent Street and Paris's Avenue des Champs-Elysees, is required to have as much as 5 per cent of its assets in real estate.

The fund earlier this month agreed to buy a 49.9 per cent stake in San Francisco's Orrick Building, also known as Foundry Square II, through a venture with asset manager TIAA-CREF. Last year, it bought a 45 per cent stake in in New York's Times Square Tower from Boston Properties, the largest US office real estate investment trust.

-From Seattle, US

Sydney housing gamble alarms central bank

Source: Business Times / Property

[SYDNEY] A 16 per cent jump in Sydney home prices in the past year is sparking alarm at Australia's central bank.

Buyers shouldn't be overly bullish in property purchases, Reserve Bank of Australia assistant governor Christopher Kent said at a Bloomberg Summit in Sydney on Tuesday.

An investor-led surge in prices may amplify any subsequent fall and risk a drop in consumer spending, hurting the economy, the bank said in minutes from its Sept 2 board meeting.

The housing market has been pumped up by the RBA keeping its benchmark interest rate at a record-low 2.5 per cent for more than a year, with investors accounting for a record 49 per cent of new home loans in July. Demand for high-risk mortgages, including interest-only loans, is setting the stage for a jump in mortgage delinquencies when interest rates rise, Moody's Investors Service said this month.

-From Sydney, Australia

Lennar Profit Beats Estimates as Sales and Prices Rise

Source: Bloomberg / Personal Finance

Lennar Corp. (LEN), the second-biggest U.S. homebuilder by stock-market value, reported fiscal third-quarter earnings that beat analysts’ estimates as it sold more homes at higher prices.

Net income in the three months through August was $177.8 million, or 78 cents a share, compared with $120.7 million, or 54 cents, a year earlier, the Miami-based company said in a statement today. The average of 20 analyst estimates was for earnings of 67 cents a share, according to data compiled by Bloomberg.

Lennar has boosted earnings by raising prices and using its large size to save money on materials and land purchases as demand for new houses remains uneven. The builder’s third-quarter orders rose 23 percent to 5,889 homes with a value of $1.9 billion from 4,785 homes and $1.5 billion a year earlier.

“Lennar appears to have pulled off in its fiscal third quarter what others have not yet been able to this summer: strong orders, growing average selling prices, and strong gross margins,” Megan McGrath, an analyst with MKM Partners LLC, said in a note to clients today after the earnings were released.

The shares jumped 5.8 percent to $41.40, the biggest gain since Dec. 18. Lennar was the best performer in the Standard & Poor’s Supercomposite Homebuilding Index, which climbed 3.1 percent today.

Third-quarter revenue increased 26 percent to $2 billion. The number of houses delivered rose 9 percent to 5,457. The average price of homes delivered increased to $332,000 from $291,000.

Toll Brothers

Toll Brothers Inc. (TOL), the largest U.S. builder of luxury homes, and Hovnanian Enterprises Inc. (HOV), a builder in 17 states, reported this month that their orders in the most recent quarter fell from a year earlier.

U.S. new-home sales fell to a four-month low in July as the average price reached a record $339,100, the Commerce Department reported last month.

“While many investors have been disappointed that 2014 sales to date did not develop the steep vertical acceleration that they had anticipated, the market did continue to move slowly and steadily forward, driving volume upward and still driving price upward, though at a somewhat slower pace,” Lennar Chief Executive Officer Stuart Miller said on a conference call with analysts.

Builder Confidence

Confidence among U.S. homebuilders rose to a nine-month high in September, a sign the industry is gaining ground, a National Association of Home Builders/Wells Fargo index showed today. The measure climbed to 59 from 55 in August. Readings above 50 mean more respondents said conditions were good.

Lennar, the largest U.S. homebuilder after D.R. Horton Inc., builds homes for first-time and move-up buyers, retirees and multiple-generation households in 18 states. It also invests in apartments, master-planned communities, mortgage financing and commercial real estate.

“Lennar has shifted its neighborhood mix further away from first-time buyers than we expected, which should reduce the business risk from mortgage underwriting standards,” Jay McCanless, an analyst with Sterne Agee & Leach Inc., said in a note to clients after the call.

While Lennar still sells about 30 percent of its homes to first-time buyers, many would-be purchasers are discouraged because loan-qualification procedures have become “invasive,” Miller said on the call.

“The process is almost designed to scare people away,” he said.

-By John Gittelsohn

Backlash Brews as Banks and REITs Oppose FHLB Rule Change

Source: Bloomberg / News

Banks and insurers are joining mortgage-investment firms in pushing back against rules that are poised to kick dozens or even hundreds of them out of an $808 billion pillar of the U.S. financial system.

Representatives of three major trade groups objected yesterday in a Senate Banking Committee hearing to regulations proposed this month that would rein in regional cooperatives calledFederal Home Loan Banks, which have about 7,500 members.

“Because so many banks of all sizes rely on the Federal Home Loan Banks for liquidity to make loans, this rule could have profound implications,” Northwest Financial Corp. Chief Executive Officer Jeff Plagge said on behalf of the American Bankers Association, according to a copy of his testimony.

The Federal Housing Finance Agency is now seeking comments on the biggest rewrite since the 1980s to membership requirements for the system, which was created during the Great Depression. FHFA Director Mel Watt said in a Sept. 8 speech that he needs to ensure the 12 FHLBs are fulfilling their mission to support housing finance “in a safe and sound manner.”

While most Americans have probably never heard of the government-chartered lenders, the network is the biggest U.S. bond-market borrower after the Treasury, using its perceived federal backing to provide cheap loans to institutions from credit unions to life insurers.

Mortgage Credit

The American Bankers Association believes it would be wrong to kick out so-called captive insurers, which are used by a broader group of firms to be members, Plagge said. Dennis Pierce, speaking for the Credit Union National Association, told lawmakers that other proposed changes could restrict mortgage credit during a fragile housing recovery.

“We’re disappointed if this comes to pass because the end result won’t fall on our company or our shareholders but ultimately will result in a higher mortgage rate,” Two Harbors Investment Corp. Chief Executive Officer Thomas Siering said Sept. 8 at an investor conference in New York.

His real estate investment trust, which buys housing debt, owns a captive insurer that’s borrowing $1.5 billion from the Des Moines FHLB, which it joined last year. The unit represents one of 18 such insurers that would be ejected within five years, including six others tied to REITs and other nonbank lenders, FHFA data show.

Barring Firms

The changes wouldn’t only bar such insurers, which sell coverage mainly to their parents. The agency said it also wants to push out firms that don’t maintain a certain amount of home mortgages or similar investments on their books, probably either 1 percent or 10 percent of assets, depending on the type and size of institution. Currently, those tests only apply when a membership is initially approved.

The regulator needs to ensure the system’s benefits are being used properly, former FHFA headEdward J. DeMarco said in an interview. Aside from home loans, FHLBs also lend against government-backed securities, commercial mortgages and sometimes even agricultural and small-business loans.

“If you’re not doing any housing finance it is a legitimate public policy and regulatory question as to whether you still satisfy the mission,” said DeMarco, a senior fellow at the Milken Institute.

Tests Questioned

Others say the tests are flawed and not needed.

“It seems like a solution looking for a problem,” Ron Haynie, senior vice president at the Independent Community Bankers of America, said in a telephone interview. Because many banks sell most of the home loans they make, “you could have folks that are pretty active in the housing market, but if you look at their balance sheet you wouldn’t see that.”

That group also complained yesterday at the Senate hearing.

According to the American Council of Life Insurers, “this proposal represents a departure from the long standing FHLB membership rules that have helped promote housing, jobs and economic development,” spokesman David Nielsen said in an Sept. 12 e-mail.

Peter Garuccio, a spokesman for the FHFA, declined to comment.

The FHLBs were created by Congress in 1932 after a string of bank failures caused by runs on deposits. In return for buying stock in the institutions and pledging collateral, members receive access to low-cost, wholesale funding. A law passed in 1989 allowed commercial banks and credit unions to join thrifts and insurers in the system, the initial two categories.

Harsher Threshold

Only about 47, or 0.8 percent, of banks that were members on Dec. 31 wouldn’t have complied with a proposed requirement that they have home mortgage-related holdings as 1 percent of assets, while 299 would fall below a harsher 5 percent threshold the agency is also considering, according to the FHFA proposal. Fourteen credit unions and 42 insurers would fail the 1 percent test.

Siering of Two Harbors (TWO) joined others in describing the FHLBs as being well protected by their collateral demands. His REIT is, “generically,” borrowing only 70 percent to 80 percent of the value of mortgages that have 30 percent down payments, high credit scores and other “very pristine” characteristics.

“You’d have to have a systemic meltdown before there’s a penny of credit risk to the Federal Home Loan system,” he said.

-By Jody Shenn

Norway Fund to Invest $1.5 Billion in Office Properties

Source: Bloomberg / News

Norway’s sovereign-wealth fund, the world’s largest, agreed to buy stakes in three prime U.S. office buildings for about $1.5 billion, extending a real estate shopping spree as it seeks higher-yielding assets.

Affiliates of Norges Bank Investment Management, which manages the Norwegian government’s global pension fund, is acquiring 45 percent interests the buildings from Boston Properties Inc. (BXP), the seller said yesterday in a statement. The properties are 601 Lexington Ave. in New York and the Atlantic Wharf Office Building and 100 Federal Street in Boston.

The fund has been expanding its holdings of high-quality properties in coastal cities. Norway’s $880 billion wealth fund formed a real estate group in July that will invest almost $10 billion a year over the next three years. The fund, whose holdings include properties on London’s Regent Street and Paris’s Avenue des Champs-Elysees, is required to have as much as 5 percent of its assets in real estate.

Norges Bank’s press office didn’t immediately respond to an an e-mail sent after regular business hours in Oslo yesterday.

The fund earlier this month agreed to buy a 49.9 percent stake in San Francisco’s Orrick Building, also known as Foundry Square II, through a venture with asset manager TIAA-CREF. Last year, it bought a 45 percent stake in in New York’s Times Square Tower from Boston Properties, the largest U.S. office real estate investment trust.

Citigroup Center

The Lexington Avenue property consists of a 59-story tower along with a six-story office-and-retail building that might be redeveloped, Boston Properties said. The tower was built in the mid-1970s as the headquarters of Citibank, and eventually came to be known as Citigroup Center as the bank made acquisitions.

Boston Properties acquired a controlling stake in the skyscraper from Citigroup Inc. (C) in 2001 for $725 million, according to Real Capital Analytics Inc., a New York-based research firm which tracks commercial property sales. Citigroup’s name was removed from the tower in 2009.

The Boston-based landlord said it will retain property and leasing management for 601 Lexington and the two Boston buildings under joint ventures with the Norwegian fund.

“This transaction represents an important step in executing our current strategy of recycling capital from existing assets into new development,” Boston Properties Chief Executive Officer Owen Thomas said in yesterday’s statement.

-By Hui-yong Yu

Insurer Capital Rules Sought by Tarullo Backed in House

Source: Bloomberg / News

The Federal Reserve would get more flexibility to set separate capital standards for systemically important insurance companies under legislation passed by the U.S. House of Representatives.

The measure, adopted yesterday as part of a package of changes to the Dodd-Frank Act, would let the Fed treat insurers such as Prudential Financial Inc. (PRU) and MetLife Inc. (MET)differently than big banks in imposing safeguards demanded by the 2010 law. It would modify a Dodd-Frank provision written by Senator Susan Collins, a Maine Republican, who has said it wasn’t meant to apply similarly to insurers and lenders.

While the vote moves the revision closer to becoming law, obstacles remain in the form of House amendments that would change rules governing mortgages, derivatives end-users and collateralized loan obligations. Those proposals will require negotiation with the Senate, which passed a bill in June that addressed only the rule for insurers.

“Congress should pass a narrow bill that would ensure that the Federal Reserve recognizes the differences between the industries and prevents banking capital standards from being applied to insurers,” Meghan Dubyak, a spokeswoman for Senator Sherrod Brown, said in a statement. “The Senate bill, which passed with unanimous support, could be sent to the President’s desk tomorrow.” Brown, an Ohio Democrat, co-sponsored the Senate bill.

In Dodd-Frank, the sweeping regulatory overhaul enacted in response to the 2008 credit crisis, the Collins measure grouped insurers and other non-bank companies with the financial firms that would face minimum capital and leverage standards to be imposed by the Fed.

Fed Flexibility

Daniel Tarullo, the Fed governor responsible for financial regulation, said at a Senate Banking Committee hearing last week that legislation is needed for the central bank to have flexibility in writing separate standards for insurers.

Prudential, based in Newark, New Jersey, was named systemically important last year and MetLife is in the final stage of a review to determine whether it gets the same designation, making it subject to heightened Fed oversight. New York-based MetLife, which hasn’t authorized a share repurchase since 2008, has said regulatory uncertainty is the biggest challenge to meetings its profitability target.

The House bill includes a measure that would exclude certain collateralized loan obligations from Volcker Rule trading limits. It also would clarify an exemption for commercial and manufacturing end-users from having to post collateral to support swaps and exclude fees to third-party services from a consumer mortgage rule.

“The addition of these amendments is a negative development of the Collins fix,” Isaac Boltansky, a policy analyst at Compass Point Research and Trading LLC, said in an interview before the vote. “The Senate now needs to decide whether it will accept other targeted changes to the Dodd-Frank Act or whether it will stick to its singular focus for insurers.”

The Senate bill is S.2270: Insurance Capital Standards Clarification Act of 2014.

-By Cheyenne Hopkins

California Beach Hotel to Get $185 Million Luxury Rebuild

Source: Bloomberg / Luxury

Rick Caruso, a Los Angeles shopping-mall developer, plans to spend about $185 million to rebuild a Southern California seaside hotel with a troubled past into a luxury getaway.

The 170-room Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara, will have such amenities as a beach club, spa, restaurants and two swimming pools, said Caruso, founder of closely held developer Caruso Affiliated. The site’s former hotel, known as Miramar by the Sea, has already been razed.

Caruso bought the property in 2007 from H. Ty Warner, the billionaire creator of Beanie Babies plush toys and owner of the Four Seasons Hotel New York. The California hotel, on about 15 acres (6 hectares), had been out of service for more than a decade as past revival efforts were stalled by local opposition to development and the property market’s crash. Former owners include hotelier Ian Schrager.

“It’s one of the most unique and irreplaceable pieces of real estate on the coast of California,” Caruso said in an interview at the Grove, his town square-style retail center in Los Angeles. “This will be an escape for visitors and locals alike.”

Caruso, who has about $1 billion in residential, retail and hospitality projects planned or under development, said he expects to choose a hotel operator and receive Santa Barbara County approval for final amendments to the Miramar project, including a surface parking lot to replace a once-planned underground garage, by the end of the year. Earlier plans also called for 200 more rooms than are now proposed.

Higher Rates

The average daily hotel room rate in the Santa Barbara area was $168.16 in the first six months of the year, compared with $138.12 statewide, according to research firm STR Inc. Revenue per available room, a measure of occupancies and rates used by the lodging industry, was $119.29 in the area, compared with $101.33 for all of California.

“Santa Barbara is doing phenomenally well,” Alan Reay, president of Irvine, California-based research firm Atlas Hospitality Group, said in a telephone interview. “With the improving economy, the lack of new supply and the incredible demand from both businesses as well as leisure travelers from California, other states and abroad -- in particular, Europe -- this is one of the great lodging markets.”

Debt Cut

Caruso paid $52.5 million for the property. At the time of the purchase, an existing loan of about $50 million with Barclays Plc (BARC) was renegotiated to cut the debt in half, he said.

Rebuilding the property “makes sense from a business point of view,” Caruso said. “The hotel market in Santa Barbara is so constrained. There are very few hotel rooms in this market.”

There remains a hurdle for Caruso once construction is complete, Reay said: the railroad tracks that cut through the middle of the property.

“That is going to be his biggest issue -- the noise factor,” Reay said. “People may be willing to deal with that if they are staying at a motel or if you are at an airport hotel, but once you pay $1,000 or $1,500 a room and that train is coming through in the middle of the night, it’s a big risk.”

Caruso said he’s not concerned because another luxury hotel in the area has dealt with the same issue, and local residents are used to the railroad.

“There is the Four Seasons and $50 million beach houses with the train running behind” them, Caruso said. “On top of that, we are doing some things around the train that will be very cool,” he said, declining to provide details.

First Hotel

The rebuilt Miramar, scheduled to open in mid-2017, is Caruso’s first foray into hospitality. Additional hotel projects are likely, he said.

Caruso, who has eight shopping centers in the Los Angeles area, has been expanding beyond retail by building high-end apartments near Beverly Hills. He’s planning a $200 million mixed-used project with luxury apartments on La Cienega Boulevard in Los Angeles, where a shuttered Loehmann’s store now stands.

“What I see in the hotel sector is what I see in retail and luxury apartments: It’s about having a collection of the best properties in the world,” Caruso said. “We’ll be on the lookout.”

-By Nadja Brandt

New York Billionaire Unmasked With Outer Borough Rentals

Source: Bloomberg / Luxury

Outside the front lobby of the Briar Wyck apartments in Jamaica, New York, lies the Van Wyck Expressway, a 12-lane stretch of asphalt where 113,000 vehicles roar past the seven-story building every day.

The rear apartments overlook six lanes of Queens Boulevard. A 10-by-20 foot cement patio with three benches surrounded by a chain-link fence and barbed wire sits outside the back door. A 45-minute subway ride from Manhattan, only one of Briar Wyck’s 201 units is vacant: a 300 square-foot studio listed for $1,070 a month, one-third of the city’s average rent of $3,210, according to market researcher Reis Inc.

The Briar Wyck and dozens of similar buildings in New York’s outer boroughs are owned by Rubin Schron, a Brooklyn investor who has amassed a $1.6 billion fortune, according to the Bloomberg Billionaires Index. The 77-year-old, who made an unsolicited $2 billion cash offer to buy the Empire State Building last year and owns a stake in Manhattan’s Woolworth Building, has never appeared on an international wealth ranking.

“He doesn’t need to sell, and he’s under no pressure to do deals,” Douglas L. Harmon, senior managing director of Eastdil Secured LLC, an investment bank that has brokered several Schron deals, said in a phone interview. “When he does, he executes quietly with class and without publicity, so you won’t hear about him that much.”

Schron owns about 15,000 apartments throughout New York, including Manhattan’s Pueblo Nuevo, a graffitied Lower East Side building where 171 of 172 tenants receive government rent assistance, according to data compiled by David Layfield and Associates, a Salisbury, Maryland, affordable housing consulting firm.

Nursing Homes

Among his 73 rental properties are Coney Island’s Trump Village I and II, where a two-bedroom apartment is available to rent for $2,525 a month, and the Monterey, a 521-unit building on East 96th Street in Manhattan, where a 550 square-foot alcove studio apartment is available to rent for $2,950 a month, according to its website.

Through his closely held Cammeby’s Realty Corp., the billionaire also owns 5 million square feet of office space in New York and Connecticut, and 186 nursing homes in 22 states, according to data compiled by Bloomberg. Schron has a financial interest in property that has a market value of more than $10 billion, based on data compiled by Real Capital Analytics, a real estate data and analytics company.

‘Private Man’

Schron owns about 75 percent of Cammeby’s property holdings, according to legal disclosures. Non-family investors own the rest. He also has at least $150 million in non-real estate assets. Much of that stems from a 2006 investment he made in Israel Discount Bank Ltd. (DSCT) with the family of the late billionaire Edgar Bronfman Sr. Schron sold his stake in the publicly traded bank this summer.

Cammeby spokeswoman Christa Segalini said Schron declined to comment.

“Mr. Schron doesn’t speak to the press very often, if at all,” she said by phone. “He’s a pretty private man.”

Schron is probably the second-largest closely held landlord in the northeast after the LeFrak Organization, which owns the 5,000-unit LeFrak City complex in Queens, among other properties. Unlike LeFrak’s tenants, Schron’s renters probably haven’t heard of their landlord, who hasn’t named any properties after himself and usually holds them through limited liability companies named for the property address.

Empire State

When he accepted an award from Agudath Israel of America this spring, Schron tried to explain why he’s so low profile, according to a video of his speech posted online.

“If you run away from honor, the honor will chase you,” he said. “If you run after the honor, the honor will run away from you. I try to run away. Maybe at this stage it’s hard for me to run so fast.”

That doesn’t mean Schron has shied away from high-profile deals. He made his unsolicited $2 billion cash offer to buy the Empire State Building in June 2013. The bid was rejected in favor of an initial public offering. Schron’s was one of three bids for the iconic tower ahead of its IPO. The offering raised $1.07 billion and prompted lawsuits from minority owners of the building over its valuation.

Schron’s 40 percent interest in another Manhattan landmark, the Woolworth Building, is part of a consortium of investors that paid $137.5 million for it in 1998. Schron helped coordinate a sale of the top 40 floors for $68 million in 2012. The investor group still owns the lower floors.

Schron formed his company in the 1960s, according to a report by the Real Deal, a real estate publication. He has operated under the Cammeby’s name since at least 1978, according to New York state records.

Promissory Note

An Orthodox Jew with eight children, the billionaire is sometimes addressed in almost reverential terms. One rabbi, writing online, related a story of how a young Schron found a box of diamonds in a house he bought for his family and returned it to the seller even though legally he had a right to keep the gems, which were worth about $40,000.

Not everyone speaks with such deference. In 2004, Schron financed a $1 billion leveraged buyout of Mariner Health Care Inc. in a deal devised by Leonard Grunstein, a New Jersey attorney who was Schron’s primary legal representative for more than 20 years, according to a New York Supreme Court opinion issued in September 2012 and Schron’s affidavit.

In return, Schron gained ownership of the real estate and a $100 million promissory note that gave him the option of taking control of the company, renamed Sava Senior Care, if the note was not repaid.

‘Toilet Paper’

When the pair’s relationship soured in 2009, Grunstein said Schron could use the promissory note “as toilet paper,” and sought to have the note declared unenforceable, according to Schron’s complaint. The court found in favor of the billionaire, who took full control of the company in return for forgiving the loan.

Calls to Grunstein through his attorney weren’t returned.

Schron then transferred ownership of the nursing home business to Sava Senior Care management while retaining the real estate. He completed a $940 million loan with Deutsche Bank AG (DB)on most of the properties, valued at $1.3 billion, this spring, according to Housing & Healthcare Finance LLC, a Chevy Chase, Maryland, adviser involved in the transaction.

A phone call to Sava CEO Anthony Oglesby wasn’t returned.

The nursing home acquisition brought other headaches. In 2009, the Department of Justice accused Schron and Grunstein, along with investment banker Murray Forman, with aiding a $50 million kickback scheme by Omnicare Inc. (OCR) The government said the men sold the right for Omnicare to provide drugs to the nursing homes.

‘Legendary Name’

The payment was structured as a purchase by Omnicare of a Schron-owned entity that was worth far less than $50 million, the Justice Department claimed. The company, Schron and other defendants paid $14 million to settle the case in 2010. Omnicare paid $98 million to settle its suit.

Legal bumps aside, Schron is “a legendary name” in New York real estate circles, and always at the top of his list when deals come through his office, said Eastdil’s Harmon.

“He always does what he says, so he is a little bit old school,” said Harmon, who brokered Schron’s $250 million purchase of the Monterey last year. “He’s not a high-levered guy. He’s a straight-forward, block-and-tackle type investor, and very substantial. Whenever I deal with him -- and I have dealt with him for many years -- it’s always a pleasure.”

-By Brendan Coffey