Citigroup dangling finance carrot

Real Estate Weekly,  Oct 31, 2007  by Daniel Geiger

Tags: Citigroup Inc., finance

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Citigroup is offering to help arrange financing for the buyer of two properties it is in the process of selling on Greenwich Street in Lower Manhattan.

The buildings, 388 and 390 Greenwich Street, are being offered in a sale-leaseback deal that sales brokers speculated, when the properties were first offered in recent weeks, would make it easier for a buyer to secure debt because there is a steady stream of high credit cash flow in place to leverage against. But, despite early signs of resurgence in September, the securitized debt markets, which have been the real estate investment sector's most abundant source of capital, continue to sputter. Brokers say that sellers, when they can, more frequently are beginning to try to take the unusual role of rounding up or attracting capital for properties that they are selling in order to grease the wheels of a sale and secure as much for their asset as possible. As a major financial institution, Citigroup is particularly able to act as such a facilitator.

The run up in real estate values in the last few years has driven sellers' price expectations to lofty heights and the financing offers are seen as an indication of their reluctance let go of the goal of achieving the kind of peak pricing that would seem over now that financing is less abundant and more expensive.

Citigroup's sale, which is being handled by Cushman & Wakefield's New York capital markets team, has been narrowed down to five bidders, according to a source, and has reached a price north of $1.5 billion. When the properties first came to market in recent weeks, it was speculated that they could fetch as much as $1.8 billion. Such a high price could cramp the competitiveness of a sale because few have the tens of millions of dollars of equity that would be needed to partake in such a large deal and that are required because of the tighter lending standards that are now in place.

Citigroup's offer has been seen as a way to potentially entice more bidders to participate and ratchet up the price of the asset.

The Paramount Group has been said to have made a similar type of financing offer for the building it is selling, 1177 Avenue of the Americas, which is also expected to fetch more than a billion dollars. A source says the firm has brought a German bank to work with buyers to potentially help structure debt for the deal.

The building is described as a trickier sale than the buildings Citigroup is offeting because it doesn't come with the same kind of guaranteed cash flow and will likely sell for a price that projects increased cash flow based on higher rents. Lenders have been unwilling to underwrite pro forma numbers.

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