Teachers retirement fund Raising your Highend Rent

Skyscraper? Value of New York Tower Is High NY REAL ESTATE COMMERCIAL December 11, 2012, 8:00 p.m. ET By CRAIG KARMIN One of the largest pension fund managers in the U.S. has agreed to buy a stake in a 76-story apartment building that values the lower Manhattan tower at a record $1 billion. TIAA-CREF is buying a stake in the New York by Gehry building. . While the valuation includes debt, no... [more]

Skyscraper? Value of New York Tower Is High NY REAL ESTATE COMMERCIAL December 11, 2012, 8:00 p.m. ET By CRAIG KARMIN One of the largest pension fund managers in the U.S. has agreed to buy a stake in a 76-story apartment building that values the lower Manhattan tower at a record $1 billion. TIAA-CREF is buying a stake in the New York by Gehry building. . While the valuation includes debt, no rental apartment building in the U.S. has ever reached such lofty heights, according to data provider Real Capital Analytics. TIAA-CREF agreed to pay about $250 million to developer Forest City Ratner Cos. for a 49% chunk of the building's equity, according to people briefed on the transaction. Forest City's parent said earlier this month that a deal for the 850-foot-tall tower at 8 Spruce St., designed by architect Frank Gehry with stunning views and penthouse apartments with asking rents up to $60,000 a month, would be completed soon but didn't disclose the buyer. Forest City and TIAA-CREF declined to comment Tuesday. The deal shows that investor demand remains strong for high-end apartment buildings even as the apartment sector overall shows signs of cooling. In some parts of the U.S., growth rates in apartment rents and values are starting to slow partly because of resilient sales of single-family homes. Despite the slowdown, buyers still are bidding up sale prices for top-quality properties in cities with strong demand and high rents, such as New York, San Francisco and Washington. "Investors are willing to pay a premium for the perceived safety" of luxury apartment buildings, said Dan Fasulo, director of market analysis at Real Capital Analytics. But these high prices leave investors with little margin for error. Enlarge Image Close. Investors already have bid up New York apartment buildings to the point that their annual returns from the properties' cash flows are less than 4% in some cases, experts say. These yields would fall even further if the economy worsens and rents start falling. But buyers perceive they have limited downside for trophy properties such as the New York by Gehry building, "and the upside can be lucrative, especially if the owner converts the apartments to condos" when that market heats up again, Mr. Fasulo said. Forest City began developing the Gehry building in 2008. The developer threatened to cap the building's height at 40 stories, citing the bad economy, before negotiating labor-cost savings from unions working on the building. As of Oct. 31, 89% of the tower's 899 units were occupied, according to a Forest City securities filing. The least-expensive apartments in the building rent for about $3,000 a month while three bedroom apartments are around $12,000 a month. TIAA-CREF has been a prominent buyer in the apartment market. The New York investor manages retirement funds for teachers and doctors and a few years ago also began managing money for outside clients. The firm recently paid a group led by Goldman Sachs Group Inc. GS +0.73%a total of $283 million for a 70% stake in a one-block-long building near Manhattan's Times Square known as MiMA, say people familiar with the sale. The property includes more than 800 apartments and 18,000 square feet of retail space. In 2011, TIAA-CREF paid $209 million for the Corner, an Upper West Side Manhattan luxury apartment building. Both MiMA and the Corner acquisitions valued the buildings at about $1 million a unit. TIAA-CREF has about $495 billion in assets under management, with about $18 billion invested in real estate in the U.S., Canada and Europe, according to the firm's website. In the past, TIAA-CREF has favored office buildings, partly because the firm had large sums to invest and office properties tended to be the highest-priced and most valuable assets. More recently, developers have been churning out expensive apartment buildings that look more like condos than rentals. That is especially true for properties such as New York by Gehry and MiMA, where the owners were initially planning to sell some units as condos. As a result, they built these properties with superior finishes compared with typical apartment buildings. The penthouses at the Gehry building, for instance, boast radiant heat bathroom floors, double ovens and remote-controlled window shades. Darcy Stacom, the CBRE broker marketing the property, didn't respond to requests for comment. —Eliot Brown contributed to this article. Write to Craig Karmin at craig.karmin@wsj.com [less]