Bouncing Bubbles

Blackstone bought Equity Office Properties Trust for $39 billion in November 2006. 261 buildings, or 48%, of the 543 buildings that EOP held in February have already been sold, fetching more than 70% of the deal’s cost. “Equity Office once held about 102 million square feet of office space in 24 markets; Blackstone has shed at least 62 million square feet of it, including much of the choicest and most expensive properties.”

Forsyth, Jennifer S. 2007. “Blackstone’s Slick Flip.” Wall Street Journal (26 July): p. C 1.

Discussing some of the recent overpriced commercial real estate deals, the article reports: “Some analysts believe the capitalization rate on the buildings — the rental income in the first year of ownership divided by the purchase price — in some of these transactions could be as low as 2.5%. Those prices can only be justified if the buyer can sell the building at a higher price or significantly raise the rents.”

I assume that the owner will have to pay maintenance costs and property taxes from this 2.5%.


2 comments so far

  1. Frazier on

    Michael, Isn’t a leveraged PE deal ending in liquidation very similar to what happened in the 80s with corporate raiding…? PS: I just got your “Steal this Idea” book in the mail.

  2. mperelman on

    You are correct. The bows and ribbons have changed, but they are mostly the same. One of the biggest players, KKR, was a leader in the first wave.

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