As the price for commercial real estate seems to be only getting higher, some players in the real estate investment trust sector are looking to merge for possibly more purchases and cost savings on their operations. This week alone there have been two high-profile mergers and bids for competing REITs in the sector. On Jan. 17th, Brookfield Asset Management Inc. offered $7.5 billion for troubled Mills Corp., meanwhile,Vornado Realty Trust along with its partners, Starwood Capital Group Global LLC and Walton Street Capital LLC, bid $37.6 billion for Equity Office Property.
One motivating factor for some of these proposed mergers is the low vacancy rates and rental rates Comerica landlords have been generating in markets such as New York City. According to Cushman & Wakefield, the Manhattan vacancy rate dipped to 6.7% at the end of 2006 from 8.4%. In addition, Cushman & Wakefield say average New York City office rents are at $50.56 per square foot near the all-time high of $50.92 set in 2000. These numbers have made office properties a hot commodity, and a vital part to the portfolios of real estate investment trusts. That's partly what makes Equity Office Trust such a sought-after company. Equity Office owns some 590 buildings and more than105 million square feet of office space, including the Worldwide Plaza and Verizon Building in Manhattan. Meanwhile, Brookfield owns about 110 office properties and may look to purchase more by possibly leveraging assets from Mills. These two deals may be a sign of things to come as the REIT sector consolidates in 2007 ... — Gerald Magpily
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