A Billion Dollars,You Say? Never Mind!

Billion-dollar building transactions once seemed so commonplace in Manhattan that the industry nearly forgot the enormity of the number in question. Another $1 billion? Big whoop! The blasé attitude of brokers, buyers, and sellers was understandable. Financing was as easy to find as a steak lover at a Real Estate Board function.

“Eighteen months ago, or two years ago, numbers were almost irrelevant,” said David Rosenberg, managing director of Meridian Capital. “You could put as many zeroes on a deal as you wanted. Numbers were all relative, because as soon as you closed, you chopped it up into bonds.”

A billion Washingtons, in other words, became an abstraction. Then, like a cold shower on a chilly winter morning, reality, in the form of the credit crunch, made a rude intrusion. Now that Wall Street shops like Lehman and Goldman Sachs are no longer originating securitized loans, would-be buyers have to borrow from more conservative balance-sheet lenders, who only want to invest $25 million to $50 million a pop. The number 1,000,000,000, in other words, has come to mean what the numeral one followed by nine zeroes normally indicates: a humongous quantity. “If you sat down to count from one to one billion, you would be counting for 95 years,” wrote David Schwartz, a children’s book author who specializes in making math comprehensible to little tykes.

And so, the stats: Last year, there were 10 single-building sales valued at more than $1 billion in Manhattan, according to Real Capital Analytics. So far this year, there have been two: Mort Zuckerman and partners’ $2.8 billion GM Building buy from Harry Macklowe, and Paramount Group’s $1.5 billion purchase of the Credit Lyonnais Building at 1301 Avenue of the Americas. For the remaining 15 weeks of ’08, industry experts predict that—with the possible exception of Worldwide Plaza—there will be zero.

That would mean an 80 percent annual drop in the number of billion-dollar building deals.

“You can certainly see some $200 million, even $300 million deals happening,” Mr. Rosenberg said. “But $1 billion, I don’t see it happening.”

Nor does Peter Riguardi, president of New York operations for Jones Lang LaSalle, who speculated that “the capital market sale business will be opportunistic, and that most of the good opportunities will be slightly below a billion dollars.” 

There are, to be sure, some dissenting voices. Paul Fried, a principal at AFC Realty Capital, said that an over-$1 billion transaction might just occur before the ball drops into 2009, but only under less-than-ideal circumstances.

“Maybe when you have a seller under pressure from a lender, and a buyer that views the value of a particular asset and is prepared to make that bet now,” Mr. Fried said. “This city still is host to a significant amount of trophy real estate, which is still attractive to capital all over the world.”

Even so, Mr. Fried said that a more-than-$1 billion deal at the tail of 2008 would probably have to involve more than one building, as neither he nor anyone else surveyed for this article knew of any such new trophy properties on the block.

“You pretty much have to have more than one [building] to hit that magic number now,” Mr. Fried said.

drubinstein@observer.com