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For sale: GM Building
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April 8, 1998: 2:28 p.m. ET
Simon DeBartolo offers key asset to Vornado, TrizecHahn, to no avail
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NEW YORK (CNNfn) - Simon DeBartolo Group Inc., the world largest retail real estate investment trust, is shopping around the landmark GM Building in midtown Manhattan to potential buyers.
But with skyrocketing real estate market putting the price of the marquee building as high as $850 million, interested parties may be feeling sticker shock, people familiar with the talks said.
The GM Building -- which houses the famed FAO Schwarz toy store -- is part of about $1 billion of key office properties that Simon DeBartolo of Indianapolis obtained in February when it acquired privately held Corporate Property Investors for $5.7 billion.
At that time, Simon DeBartolo signaled its intentions to sell off the office properties to concentrate on its portfolio of retail shopping centers, its core strength.
Since then, the REIT has held discussions with Vornado Realty Trust, based in Saddle Brook, N.J., and TrizecHahn Corp. of Toronto, people familiar with the talks said.
But because of the soaring prices of Manhattan's office real estate, TrizecHahn has bowed out of the talks, a person close to the situation said.
Negotiations with Vornado also appear to have reached an impasse, observers said.
"I think that Vornado is going to want it but would they pay any price to get it, I doubt it," said Barry Vinocur, editor of Realty Stock Review, an industry newsletter.
A TrizecHahn spokeswoman in Toronto declined to comment on the matter. Officials from Simon DeBartolo and Vornado weren't available for comment.
Even though key office properties such as the GM Building or Embarcadero Center of San Francisco can garner higher prices, those marquee buildings are still subject to the same valuations standards.
"There is a general trend that companies are willing to pay more for unique properties generally because they are difficult to replace. But the fact that pricing is different for marquee buildings isn't that accurate," said Steven Hash, analyst at Lehman Brothers.
Hash estimates the value of the midtown Manhattan building between $825 million and $850 million -- above the range of $700 million to $800 million that Vinocur heard in earlier talks.
CAP rates -- a standard method of valuation used in the commercial real estate industry -- have reflected the rising prices, Vinocur said. Those rates -- defined as a property's net operating income divided by its purchase price -- have declined at least 100 basis points over the last 12 to 18 months, he said.
Simon DeBartolo is still expected to find a buyer eventually, as the office real estate market continues to consolidate.
"The most attractive asset they own is the GM Building," Vinocur said. "Simon is in a good position. If you have good real estate assets in sectors people want...this is definitely a seller's market."
Equity Office Property Trust of Chicago and Boston Properties Inc. were also believed to be among the list of buyers, analysts said.
-- by staff writer Robert Liu
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