GE Real Estate to Invest Three Hundred Million in Taiwan

By Kathleen Chu and Katsuyo Kuwako

Dec. 17 (Bloomberg) -- General Electric Co.'s property arm, which has more than $62 billion of assets worldwide, plans to invest $300 million in Taiwan in the next two years as the company diversifies its Asian portfolio.

Taiwan's property market has become attractive relative to Tokyo, where rising office prices have reduced return on investment, said Tomoyuki Yoshida, head of Japan real estate operations for GE Real Estate Corp. The nation's low borrowing costs are also a plus.

``Japan is too stable,'' Yoshida said in an interview with Bloomberg news. ``Hong Kong's market is a little too hot. Taiwan is one of the best countries to enter in Asia. You can enjoy arbitrage.''

Grade A office space in Tokyo's central business districts offers a return on investment of 3.1 percent, while similar buildings in Taipei yield as much as 5.9 percent, according to a report by Jones Lang LaSalle Inc.

GE Real Estate's Japan office, which also oversees investment in Macau and Hong Kong, bought its first property in Taiwan on Nov. 30. It paid NT$684 million ($21 million) for a 12-story office building in Taipei from Hocheng Group Corp., a bathroom and kitchen equipment manufacturer, to whom it will lease back the building.

GE Real Estate will initially focus on office and retail properties, Yoshida said, and it's studying collaborations with Taiwanese developers on condominium development.

The value of office buildings in Taipei gained 20 percent in the past year as acquisitions by investors drove up prices, according to DTZ Debenham Tie Leung, a property consulting company.

Grade A office sites are buildings no older than 25 years with total leasable floor area of more than 10,000 square meters (107,639 square feet) and more than 800 square meters per floor, according to Jones Lang LaSalle.

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net ; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net .

Behringer Harvard Grows Office Holdings to 4.8B

DALLAS -- Commercial real-estate investor Behringer Harvard on Wednesday completed its $1.4 billion acquisition of the subsidiaries of Toronto-based IPC US REIT, boosting the office holdings in its REIT I portfolio to roughly $4.8 billion.

In tandem with closing that deal, Dallas-based Behringer Harvard said it has closed on a $500 million credit facility to help finance the IPC US REIT deal and other acquisitions. Of that amount, $300 million comes as a revolving credit facility and $200 million as a term loan. Arranging the transaction were Wachovia Securities and KeyBanc Capital Markets, part of KeyCorp.

Behringer Harvard announced its acquisition of IPC US REIT, which was traded on the Toronto Stock Exchange, in August. The purchase included $600 million paid for equity and the assumption of $800 million in debt.

The former IPC US REIT's assets span 9.6 million square feet of rentable space in major U.S. cities. They include 500 East Pratt in Baltimore; McDonald Investment Center in Cleveland; and Bank of America Plaza in Las Vegas, among others.

The acquired portfolio now is part of Behringer Harvard's REIT I Inc., a publicly registered but nontraded real estate investment trust. With the acquisition completed, REIT I now holds 76 office properties totaling more than 25.1 million square feet of rentable space.

"This is a strategic purchase that further diversifies the portfolio from a geographic perspective and at the same time strengthens its presence in existing markets such as Philadelphia, Houston and Baltimore," Behringer Harvard founder and chief executive Robert Behringer said in a statement.

Behringer Harvard, formed in 2001, also manages its Opportunity REIT I, with about $1 billion in assets; Short-Term Opportunity Fund I LP, with $200 million; and Mid-Term Value Enhanced Fund I LP, with $40 million.

Goldman Cashes in on Subprime Meltdown

How Goldman Won Big
On Mortgage Meltdown

By Kate Kelly
From The Wall Street Journal Online

The subprime-mortgage crisis has been a financial catastrophe for much of Wall Street. At Goldman Sachs Group Inc., thanks to a tiny group of traders, it has generated one of the biggest windfalls the securities industry has seen in years.

The group's big bet that securities backed by risky home loans would fall in value generated nearly $4 billion of profits during the year ended Nov. 30, according to people familiar with the firm's finances. Those gains erased $1.5 billion to $2 billion of mortgage-related losses elsewhere in the firm. On Tuesday, despite a terrible November and some of the worst market conditions in decades, analysts expect Goldman to report record net annual income of more than $11 billion.

Goldman's trading home run was blasted from an obscure corner of the firm's mortgage department -- the structured-products trading group, which now numbers about 16 traders. Two of them, Michael Swenson, 40 years old, and Josh Birnbaum, 35, pushed Goldman to wager that the subprime market was heading for trouble. Their boss, mortgage-department head Dan Sparks, 40, backed them up during heated debates about how much money the firm should risk. This year, the three men are expected to be paid between $5 million and $15 million apiece, people familiar with the matter say.

Under Chief Executive Lloyd Blankfein, Goldman has stood out on Wall Street for its penchant for rolling the dice with its own money. The upside of that approach was obvious in the third quarter: Despite credit-market turmoil, Goldman earned $2.9 billion, its second-best three-month period ever. Mr. Blankfein is set to be paid close to $70 million this year, according to one person familiar with the matter.

Goldman's success at wringing profits out of the subprime fiasco, however, raises questions about how the firm balances its responsibilities to its shareholders and to its clients. Goldman's mortgage department underwrote collateralized debt obligations, or CDOs, complex securities created from pools of subprime mortgages and other debt. When those securities plunged in value this year, Goldman's customers suffered major losses, as did units within Goldman itself, thanks to their CDO holdings. The question now being raised: Why did Goldman continue to peddle CDOs to customers early this year while its own traders were betting that CDO values would fall? A spokesman for Goldman Sachs declined to comment on the issue.

The structured-products trading group that executed the winning trades isn't involved in selling CDOs minted by Goldman, a task handled by others. Its principal job is to "make a market" for Goldman clients trading various financial instruments tied to mortgage-backed securities. That is, the group handles clients' buy and sell orders, often stepping in on the other side of trades if no other buyer or seller is available.

The group also has another mission: If it spots opportunity, it can trade Goldman's own capital to make a profit. And when it does, it doesn't necessarily have to share such information with clients, who may be making opposite bets. This year, Goldman's traders did a brisk business handling trades for clients who were bullish on the subprime-mortgage-securities market. At the same time, they used Goldman's money to bet that that market would fall.

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In-line Retail Rental Rates on the Rise

By Ryan Chittum
From The Wall Street Journal Online

A strong fourth quarter helped boost the strip-mall sector to its best year since 2000, but the shopping-mall market posted mixed results.

Rents rose moderately in the U.S. mall and strip-mall sectors in the fourth quarter, while vacancies edged up in both, according to a survey. But the similarities end there for 2005, which was the best year for strip malls since 2000, while the shopping-mall market was essentially flat.

Shopping malls can be more susceptible to downturns in the economy and changes in consumer taste than their strip-mall cousins because they put more emphasis on discretionary items; strip malls tend to have more stores selling nondiscretionary items and are less affected by slips in consumer sentiment.

The shopping-mall vacancy rate tiptoed up to 5.5% in the fourth quarter from 5.4% in the third quarter, according to a quarterly survey of the top 67 U.S. markets by Reis Inc., a New York-based real-estate research firm. Asking rents moved up 0.5% to $38.27 per square foot per year in the last quarter, from $38.08 in the third quarter. The 5.5% mall vacancy rate at the end of 2005 was slightly higher than the 5.3% logged at the end of 2004. Rents were up just 1% for the year, putting their two-year gain at an anemic 0.9% after a 0.1% decline in 2004.

Asking rents at strip malls, on the other hand, gained a solid 3.2% in 2005, their best showing in five years. While the strip-mall vacancy rate crept down to 6.8% at the end of 2005 from 7% a year earlier, absorption -- the net change in occupied space -- was strong at 30.3 million square feet, also the best showing in five years.

For the quarter, average rents in strip malls were up 0.9% to $18.41 a square foot from $18.24 in the third quarter. Absorption was strong at 8.6 million square feet, but a stepped-up construction pace lifted vacancies to 6.8% in the fourth quarter from 6.7% in the previous period.

Casino's Gamble on Vegas Conventions

By Tamara Audi
From The Wall Street Journal Online

More than a decade ago, before his name started popping up on lists of the world's richest men, Sheldon Adelson had an idea few thought would work: build two massive casino-resort hotels on the Las Vegas strip joined by millions of square feet in convention space. In those days, the convention trade was just an afterthought in Vegas, a mechanism to fill rooms during the week before the gamblers invaded on the weekend.

Now the Las Vegas Sands Corp. chief executive's vision is nearly complete, and Vegas's convention and meetings business has transformed from filler during slow periods into a pillar of the casino industry.

In late December, Las Vegas Sands plans to open the $2 billion Palazzo hotel tower, next to the company's Venetian hotel, which opened in 1999. Both hotels, with their total of more than 7,000 rooms, will be linked to the recently expanded Sands Expo and Convention Center.

When the Palazzo opens, the company will unveil a marketing campaign that pitches the entire 19-million-square-foot complex as MEGACENTER -- in all-capital letters true to Mr. Adelson's "bigger is better" style. The center's 2.25 million square feet of meeting space, Mr. Adelson says, is more than that offered by the entire city of San Francisco.

Without stepping outside, a guest at either of the hotels would have access to 30 restaurants, two spas, casinos, theater and shops -- as well as five stories of meeting space with rooms for groups as small as 50 and as large as 55,000.

The completion of the complex comes as the Las Vegas convention business is in the midst of a boom, with resorts aggressively pursuing the convention business as profit from hotels, restaurants, spas and other entertainment has outstripped that from gambling's slot machines and blackjack tables.

Though conventioneers have tromped across casino floors on their way to exhibit halls and conference rooms for decades, their numbers -- and spending -- have recently skyrocketed. Last year, 6.3 million business travelers visited Las Vegas for conventions or business meetings, up from 5.7 million in 2004, according to the Las Vegas Convention & Visitors Authority. Those visitors spent $8.2 billion. The group says it has tracked a significant increase in the number of business conferences, smaller group meetings of anywhere from 10 people to 1,000. Meanwhile, conventions and trade shows draw tens of thousands of visitors annually.

"In the last five years you have seen an explosion of meeting space and exhibit space," said Chris Meyer, vice president of convention sales for the LVCVA.

In the past, Las Vegas businesses didn't see conventioneers as a prime target, in part because their rooms were steeply discounted and some groups were notorious for their light gambling habits. These days, weekday room rates at convention hotels have risen because of the rising demand from business travelers. And even if convention attendees don't gamble, they often spend on Vegas's vastly expanded retail, dining and spa offerings.

Mr. Adelson, a native of Boston, made his name and fortune with Comdex, at one time Las Vegas's premier computer trade industry show. He has made conventions the centerpiece of his business model at the Las Vegas hotel, casino and resort development company.

Today's business is certainly a long way from when Mr. Adelson took over the Las Vegas Sands casino in 1989. Then, the average daily rate for a room was $60, he recalls. He demolished the old casino -- an iconic locale that hosted Frank Sinatra and the rest of the Rat Pack in its heyday -- to make way for the all-suites Venetian. In the first three quarters of this year, the average rate for a night at the Venetian was $259, with 99.7 percent occupancy. Mr. Adelson attributes the rise in room rates in large part to the convention business, and his company says 40% of the Venetian's overall occupancy comes from convention and meeting visitors.

The company opened Sands Expo in 1991, and last year added 400,000 square feet of meeting space to it.

Even hotels without massive exhibit halls are eager to take advantage of growth in the meetings business. Harrah's Entertainment Inc., which owns six properties in Vegas, recently recast its conference strategy by offering the same perks and discounts at all Harrah's properties for a single event. Planners and VIPs in attendance also get a "diamond" card allowing them to wait in different lines than tourists at all Harrah's properties. The visitors and planners "get this unique experience with varied properties, but they also get to leverage their spending with one organization," says Michael Massari, the vice president of Las Vegas Meetings By Harrah's Entertainment. Harrah's started the program in 2005, and revenues from its conference and meetings business have grown by 43% from 2004 to 2006, he says.

In 2003, MGM Mirage significantly increased the convention and meeting space at its Mandalay Bay property from 200,000 square feet to 1.5 million square feet.

The LVCVA is expanding the city's free-standing convention center by a million square feet. When the expansions and renovations are complete in 2012, the center will total four million square feet.

Even as Vegas puts the finishing touches on new convention space, and plans still more meeting space in the future, business travel may drop if the U.S. economy continues to slide. That could put a dent in Vegas' convention business in the short term, analysts say.

"It's reasonable to expect some slowdown. But hotel and convention centers aren't disposable assets. You build them for the long-term,'' said Robert LaFleur, a lodging and gambling analyst for Susquehanna. "And at the end of the day, people will want to go to Las Vegas. They always have, and they always will."

Las Vegal Sands executives said that one hurdle with Megacenter is to avoid overwhelming visitors. They stress that the two hotels are run as separate entities with separate staffs and lobbies for better service.

"The customer gets a critical mass of a 7,000 room complex in an intimate 3,000 room setting," said Sands executive vice president Brad Stone, only half-joking. Mr. Stone, who has been with Mr. Adelson from the early planning stages 12 years ago, says the Palazzo was in the works for so long that the concept changed from an island resort motif to a luxury concept -- reflecting Las Vegas's move away from the theme-park trend in favor of more grown-up decor.

The Palazzo is joined to a section of the Venetian that houses a theater and restaurants, and leads directly to exhibit and meeting space. Unlike the Venetian, with its gondoliers and renaissance clown jugglers, the Palazzo features soaring sunlit spaces, clean lines and wide corridors that will be filled with gardens and fountains. On a recent tour of the property, a sleek Barney's department store was taking shape, along with an ornate, low-lit cafe.

"The vision for this property has been validated a long time ago," Mr. Adelson said. At the time he was planning the hotel-convention complex, "everybody always thought I was nuts...Now everybody is copying us."

Email your comments to rjeditor@dowjones.com.

Citigroup to write off 3 Billion in CDO's

By Andrew Dowell
From The Wall Street Journal Online

NEW YORK -- Bank of America Corp. said Tuesday it will take a pretax write-down of about $3 billion in the fourth quarter to reflect a drop in value of securities related to mortgages and will spend $600 million supporting in-house money-market funds that are exposed to troubled financing entities called structured investment vehicles.

The bank also will suffer a $300 million impairment of the value of a mezzanine investment, Chief Financial Officer Joseph Price told analysts in New York.

Mr. Price also said the market for syndicating loans made to finance leveraged buyouts, while somewhat improved from the summer, remains "fragile" and will be tested by big deals that banks like Bank of America are bringing to market soon.

The disclosures make Bank of America the latest institution to lift the lid on the damage done by its exposure to positions harmed by the implosion of the market for subprime mortgage loans.

Analysts in particular have been concerned about losses related to so-called collateralized debt obligations, which bundle loans and other securities and then slice them into new debt. The market for CDOs has collapsed due to concerns about their exposure to subprime mortgages. Conditions in that market could worsen, Mr. Price warned.

"There could be an additional diminution of value," he said.

The bank cut back its share buybacks to restore its capital levels after completing its acquisition of LaSalle Bank Corp. on Oct. 1. Bank of America won't restore those cuts in buybacks before the second half of next year, Mr. Price said.

Bank of America shares recently were up 72 cents, or 1.6%, at $44.70.

Mortgage-related write downs across the banking industry were more than $40 billion in the third quarter, and the fourth quarter could end up being worse. Along with Bank of America, Wachovia Corp. last week marked down the value of its loan-backed securities by about $1.1 billion, Citigroup Inc. has said it will write down as much as $11 billion and Morgan Stanley anticipates a write-down of up to $6 billion in the fourth quarter.

-- The Associated Press contributed to this article

Retail Roundup Nov. 2007

CoStar Reports on Retail Expansion Plans, New Developments, Acquisitions/Mergers/Sales, Cutbacks, Personnel, Sustainability and more...
This week in the Retail Roundup, CoStar reports on expansions and new concepts at Starbucks, TJX, Charlotte Russe, Pet Supermarket, Qdoba Mexican Grill and Relax the Back; new retail developments in IL, VA, TX and NY; acquisition, merger, or sale activity at The Shoe Box, F.A.O. Schwarz, Big Dog, Luxottica, Susser, Party City, Wendy's, Zale and Westfield; Dispositions or Cutbacks at Discovery Channel, BP and Steak 'N Shake; sustainability efforts at Wal-Mart, Simon, Glimcher and JLL; and more.

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