07/01/2009

UBS Puts Out Feelers on Stake in NY Tower

UBS is quietly gauging interest in the 50% stake it owns in its Midtown Manhattan headquarters.

There appears to be no formal listing for its interest in the 1 million-square-foot building, at 299 Park Avenue. But UBS and its advisor, CB Richard Ellis, are trying to determine how much the bank's share of the property would command. CB declined to comment.

Underwriting the property could be difficult with the market still in decline. One local player pegged the building's value at about $600/sf, which would place a $300 million price tag on the UBS stake. But such calculations are little more than guesswork, given the lack of transactions in the city over the past year.

UBS might not proceed with an offering if initial feelers don't drum up enough interest. Indeed, that outcome wouldn't be a surprise, given the dismal sales market. For example, Cushman & Wakefield, working on behalf of a Goldman Sachs partnership, recently spoke to a few prospective bidders for the 412,000-sf office building at 417 Fifth Avenue. But when it became clear bids weren't going to approach Goldman's strike price, the marketing effort was halted.

UBS owns its building in partnership with Fisher Brothers Realty, a long-established New York firm whose stake is apparently not in play. It's unclear if Fisher Brothers would be a potential buyer of the UBS stake, which was structured to be a shade under 50%. Fisher Brothers developed the 43-story tower, which stretches between East 48th and East 49th Streets, in 1967 for Westvaco (now MeadWestvaco). UBS later bought its stake and became the building's main tenant.

One big selling point is that the property has a long-term mortgage at an attractive rate. That means a buyer need not be concerned about refinancing the building amid the worst credit crunch in memory. UBS originated a $325 million mortgage on the property in 2006. The loan, which is believed to have a 5% coupon, doesn't mature until 2026.

The building is about 98% occupied. UBS has a lease on 741,000 sf until 2018. But it subleases a chunk of that space to various companies, including Cerberus Partners (65,000 sf) and Friedman Billings Ramsey (26,000 sf). UBS recently asked CB to try to sublease another 170,000 sf, at rents of $55-$69/sf. The space likely would have fetched well above $100/sf some 12-18 months ago.

Other tenants include the Consulate of Japan, which renewed a 57,000-sf lease last month at about $70/sf. MeadWestvaco leases 43,000 sf, and Fisher Brothers leases 32,000 sf. Each of those leases runs until 2018.

UBS is trimming the size of its business after being whacked by the banking industry's financial implosion last year. The Swiss bank has taken $52.8 billion of writedowns since the crisis started, the fourth-highest total among global financial institutions, according to a ranking by sister publication Asset-Backed Alert. UBS plans to cut roughly 8,700 jobs as part of an effort to reduce costs by up to $3.7 billion by the end of next year.

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