For the past couple of months I have written a lot about the weak real estate market, almost all of which has been negative, but don't tell that to Somerset Partners LLC. It was announced today by the Wall Street Journal (subscription required) that the New York-based private-equity firm won the bidding on an office building in New York City that represents that highest per square foot price of any building in the history of the country!The property in question is located at 450 Park Ave. and went for a whopping $510 million dollars. If you were to break that price tag down to a per square foot basis you are talking about $1,589 a square foot. Not too shabby in a country with a weak real estate market.
The building last changed hands back in 2002 when the price went for $492 a square foot for a total cost basis of around $158 million. Not a bad investment to say the least. We are talking about a $352 million profit over the last five years, representing a little over a 222% percent change! Not too shabby at all.
With prices falling for the housing market, many analysts had been expecting that the trend would carry over into high-end office developments as well. This just does not seem to be the case. The previous record for the most expensive per square foot office buildings was set just a month ago when Italian based Gruppo Zunino agreed to pay $1,476 a square foot for New York's 660 Madison Ave.
With the recent trend of rising prices for New York City office complexes, don't be surprised to see more companies looking to cash in by selling some of their properties. New York City has long been a favorite location for foreign companies looking to branch into America, and with recent weakness in the dollar, we can only expect to see more and more of these high dollar properties hitting the market.
According to Douglas Harmon, senior managing director of Eastdil Secured, who brokered both the 450 Park and 660 Madison transactions, "These trades sum up the juxtaposition of the decline of the dollar and the overflowing liquidity that is increasing the number of buyers to many markets in the U.S., and clearly New York is their preferred destination."
Just how much higher can prices rise in this coveted business remains to be seen, but you can be sure that anyone who owns property in Manhattan has seen more than a few dollar signs cross their minds today.
Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.
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