BXP next FAIL first?

I just heard Mort Zuckerman say on Bloomberg Radio that Manhattan was a supply constrained real estate market and that being focused on the high end of the market they should insulated. I am not sure if Mr. Zuckerman was just putting on a a brave face or if he really believes this, either way, i'll be putting on a net long volatility position in BXP to compliment one I already have in Simons Property Group. With bank bonuses a thing of the past Manhattan real estate is going down, hard.

Bloomberg.com: News

Zuckerman Loss Makes Sam Zell Master of Real Estate (Update2)

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By Bob Ivry

Jan. 30 (Bloomberg) -- Billionaire Mortimer Zuckerman just learned a hard lesson from billionaire Sam Zell.

Zuckerman’s Boston Properties Inc. said this week that three Manhattan skyscrapers it bought in May lost about $165 million of value in seven months. Zell exited the office property market in February 2007, selling Equity Office Properties Trust and its more than 500 buildings to Blackstone Group LP for $39 billion in debt and equity, the largest leveraged buyout at the time. It was the peak of the market.

“After that, the world changed,” said Dan Fasulo, managing director at real estate data provider Real Capital Analytics.

Boston Properties disclosed the writedowns as it reported its first quarterly net loss in at least eight years. Zuckerman bought the three office towers from developer Harry Macklowe, who was forced to sell because he had to repay short-term loans he used to buy eight buildings from Zell in February 2007.

Financial companies, battered by more than $1 trillion of writedowns and credit-market losses since 2007, have tightened commercial real estate lending. U.S. sales of office buildings plunged 88 percent since the second quarter of 2007, according to New York-based Real Capital Analytics. In midtown Manhattan, the location of the three buildings, 6.7 percent of commercial space was vacant in February 2007, according to data from Colliers ABR. In December, vacancies climbed to 10.2 percent.

General Motors Building

Blackstone wrote down the value of its real estate by 10 percent in the third quarter of 2008, according to a filing with the U.S. Securities and Exchange Commission. The value will be updated when the New York-based investment firm announces fourth-quarter results next month. Blackstone spokesman Peter Rose said he had no further comment.

Boston Properties took impairment charges on 540 Madison Avenue, 2 Grand Central Tower and 125 West 55th Street. The shares fell 96 cents, or 2.2 percent, to $43.30 at 4 p.m. in New York Stock Exchange composite trading. The stock dropped 51 percent in the past 12 months.

The tower that Boston Properties bought in May that kept its value was the General Motors Building, the $2.8 billion skyscraper on Fifth Avenue adjacent to Central Park.

“You can’t fault Mort Zuckerman for buying the single best property in the U.S., the GM Building,” New York real estate billionaire Richard LeFrak said in an interview. “If you’re going to overpay for something, you overpay for that. Today it sounds like a high price, but 10 years from now they’ll be yelling, ‘Maestro! Genius! Take a bow!’”

‘Smart Guy’

Lawrence Fiedler, president of JRM Development Enterprises Inc. in New York and a real estate professor at New York University, said he thought a $165 million writedown didn’t sound like a lot of money. He praised Zell and Zuckerman.

“Mort Zuckerman is a smart guy,” Fiedler said. “Did he pay too much? Everybody who bought property when he bought property paid too much.”

Zuckerman, in an interview, blamed mark-to-market accounting rules that require publicly traded companies to declare the value of their assets every three months.

“We do expect to get somewhat less rent in those buildings than we thought we would, but it doesn’t mean the buildings are worth less,” said Zuckerman, who’s chairman of Boston Properties. “There are a whole set of assumptions that has to meet the standards of your public accountant. We wouldn’t sell these buildings for this price. We would buy them.”

In a February 2007 interview, Zuckerman called Zell “one of the authentic geniuses of real estate.”

Terry Holt, a spokeswoman for Zell, said he declined comment.

“Zell sold the buildings at the right price at the right time,” Zuckerman said yesterday in the interview. “Nobody’s ever perfect, though. You end up buying a newspaper business.” Zuckerman owns the New York Daily News tabloid newspaper.

Last month, less than a year after Zell bought Tribune Co., owner of the Chicago Tribune, and took it private, the media company sought bankruptcy protection with $13 billion of debt.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.