One World Trade Center Rises, Along With Its Rents

The Port Authority of New York and New Jersey was quick to congratulate itself on April 30 when One World Trade Center surpassed the Empire State Building in height, making it New York’s tallest skyscraper. In a news release, David Samson, the agency’s chairman, said the tower was “much more than steel and concrete, it is a symbol of success for the nation.”

The Port Authority is justifiably proud of One World Trade Center, the tallest of six towers that will rise at Ground Zero in lower Manhattan. The redevelopment of the site of America’s worst terrorist attack was delayed for years by lawsuits and political squabbling. Now that One World Trade Center has reached 1,271 feet, it has begun to fill the void in the Manhattan skyline where the Twin Towers once stood. When it is finished in 2013, the David Childs-designed skyscraper will be 1,776 feet.

But will the rents soar along with the tower’s height? The Port Authority is asking $75 per square foot in the building—comparable to the average for top-notch commercial space in midtown Manhattan. But real estate experts say the agency has had to discount the price to attract Conde Nast, its anchor tenant, which has agreed to take floors 20-45 in the building. “The market has yet to validate” the Port Authority’s asking rent, says John Wheeler, managing director of real estate broker Jones Lang LaSalle (JLL).

Douglas Durst, chairman of the Durst Organization, which is co-developing One World Trade Center and handling its leasing for the Port Authority, would not discuss the tower’s lease prices. However, he acknowledged that the agency was offering rental subsidies of $5 per square foot. “We’re very optimistic that we’ll have the building fully rented by the date of 2017, 2018,” he says.

The Port Authority has been through this before. Mitchell L. Moss, Henry Hart Rice Professor of Urban Policy and Planning at New York University, says the Port Authority employed similar tactics when it opened the first World Trade Center in 1973. “They had to practically give away space to attract tenants,” he says. “They had dentists in there and artists. They moved a lot of state agencies in to fill the place.” Even so, according to Moss, it took 13 years for the Port Authority to fill the Twin Towers. He says the agency didn’t really attract Wall Street tenants to the complex until after the 1993 terrorist bombing, when it renovated the buildings and upgraded the retail space.

Moss agrees with Durst that it won’t take that long to fill One World Trade Center. The urban studies professor points out that the surrounding neighborhood is no longer the stodgy business district that it was in 1973. It is now filled with expensive residential buildings, fancy restaurants, and fashionable people.

He also says that One World Trade Center is easily accessible by public transportation from New Jersey and Brooklyn, where most Manhattan office workers now live. Surely they will appreciate the upscale additions in lower Manhattan. They may also enjoy saving some money. Moss notes that retailer Century 21?s flagship store is only a short walk from the tower on Cortland Street. “Everybody wants to shop there,” he says.

Leonard is a staff writer for Bloomberg Businessweek in New York. Winter is a reporter for Bloomberg Businessweek in New York.

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S&P 500 Rises Most Since ’87 as Bernanke Helps Offset Europe

January 19, 2012, 12:55 PM EST By Inyoung Hwang and Whitney Kisling

Jan. 19 (Bloomberg) -- U.S. stocks are off to the best start in 25 years as investors speculate Federal Reserve Chairman Ben S. Bernanke has done enough to insulate the economy from Europe’s debt crisis.

The S&P 500 has gained 4 percent, the most since it rose 10 percent over the first 11 days in 1987, according to data compiled by Bloomberg. Stocks are overcoming earnings that trailed estimates by the widest margin in three years as improvements in hiring, manufacturing and car sales extend the biggest fourth-quarter advance since 2003.

Bernanke has left the target rate on overnight loans between banks unchanged since the end of 2008, the longest stretch since at least 1971, data compiled by Bloomberg show. The policy may push more investors toward equities after yields on 10-year Treasuries finished 2011 within a quarter-point of a record low and the economy grew at an estimated 3.1 percent rate last quarter, said John Carey of Pioneer Investments.

“It’s probably a good idea not to fight someone so much bigger than you are,” Carey, a Boston-based money manager at Pioneer, said in a telephone interview on Jan. 18. The firm oversees about $220 billion. “The Fed will probably stay on its course,” he said. “I haven’t heard any indication that the Fed is considering boosting interest rates, so stocks will look attractive from an income point of view.”

Worst to First

Four companies whose declines were among the 10 biggest in the S&P 500 last year are among the 10 largest gainers in 2012. Netflix Inc., the Los Gatos, California-based movie service, climbed 42 percent, and First Solar Inc. in Tempe, Arizona, is up 27 percent. Charlotte, North Carolina-based Bank of America Corp., which lost 58 percent in 2011, gained 22 percent this year, while Sears Holdings Corp. in Hoffman Estates, Illinois, rose 24 percent after losing 56 percent.

The S&P 500 advanced seven of the first eight days this year, something that has occurred eight times since 1900, data compiled by JPMorgan Chase & Co. show. The mean return those years was 16 percent, the data show.

About $460 billion has been added to the value of American shares this year and the S&P 500 reached an almost six-month high yesterday, as economic reports outweighed concern that downgrades for European nations would worsen the debt crisis. France was stripped of its top rating by S&P and banks suspended talks with Greece over restructuring.

Economic Growth

“Europe is important but it’s not the end of the world if they see a recession,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a Jan. 17 phone interview. “We’re starting to see that modest economic growth expectation for this year.”

The average forecast for U.S. gross domestic product growth this year has been rising since October. From a low of 2 percent, the median estimate in a survey of 72 economists has climbed to 2.3 percent, including a 0.2-point increase on Jan. 12 that represented the biggest one-day gain since projections for 2012 began, according to data compiled by Bloomberg.

Optimism about the economy is helping investors shrug off fourth-quarter earnings that have trailed estimates. Profit fell short of analyst forecasts by an average of 4.3 percent among the eight S&P 500 companies that posted results in the first week of earnings season, the data show. Three other quarters with a worse first week of earnings season were in 2007 and 2008 as the economy was slipping into to the worst recession since the 1930s.

Five-Month High

The S&P 500 increased 1.1 percent to 1,308.04 yesterday, the highest level since July 26. It climbed 1.4 percent over four days last week, reaching a five-month high of 1,292.48 on Jan. 11 even after Microsoft Corp., the world’s biggest software maker, said personal computer sales were probably worse than forecast in the fourth quarter.

“This year isn’t going to be about earnings,” James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management, said in a Jan. 17 phone interview. “There’s a lot of value in the market that could come just from people calming down about this recession, depression calamity. It’ll be about expanding that multiple.”

Combined S&P 500 profit is forecast to reach $104.76 a share in 2012, the highest level ever, according to data compiled by Bloomberg. The benchmark index is trading at 12.5 times forecast earnings. That compares with 13.4 at the beginning of 2011. The S&P 500’s average ratio in 2011 was 14.1 based on reported earnings. The five-decade mean is 16.4.

Unprecedented Stimulus

Central banks around the world have taken unprecedented measures to prevent the European debt crisis from triggering a global recession. European Central Bank President Mario Draghi last month unveiled plans to offer banks 36-month, 1 percent loans through two so-called longer-term refinancing operations, known as LTROs.

That combined with investor speculation of a third round of stimulus by the Fed and bets China’s central bank will ease monetary policy has fueled stock prices, according to Doug Noland, the money manager for Pittsburgh-based Federated Investors Inc.’s Prudent Bear Fund, which oversees $1.3 billion. It won’t last, he said.

“Markets over the years have become programmed to focus a lot on monetary stimulus,” Noland said in a Jan. 17 phone interview. “It’s a very dangerous reason to be buying equities. We saw in 2011 how QE2 didn’t have much fire power. We’ve seen European policy making repeatedly disappoint the markets.”

Target Rate Unchanged

Fed policy makers have left their target rate unchanged since the end of 2008, data compiled by Bloomberg show. The S&P 500 more than doubled from its low in March 2009 after Bernanke signaled in August 2010 the central bank would embark on a second round of asset purchases, known as quantitative easing, to boost the economy.

The index declined as much as 19 percent from its 2011 high in April through October last year as the program ended and concerns European leaders would fail to tame the region’s debt crisis escalated. It has since rebounded 19 percent.

Gross domestic product in the euro region will shrink by 0.2 percent this year, the median estimate in a survey of 21 economists surveyed by Bloomberg. The diverging outlooks are reducing lockstep price moves. The so-called 30-day correlation coefficient between the euro and S&P 500 fell 27 percent to 0.66 after reaching a record 0.91 in November.

Correlation Weakens

Speculation about whether European leaders would succeed in containing the credit crisis sent equity, currency and commodity markets up and down in unison last year. The relationship between U.S. stocks and the euro weakened after American unemployment fell to 8.5 percent from 9 percent and business activity as measured by the Chicago Purchasing Managers Index expanded at the fastest pace in seven months.

“A lot of people dismissed the original data in the fall as being backward looking,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “But when you started seeing jobless claims going down, it looked more and more like the U.S. had shrugged off a lot of the European contagion.”

Rallying stocks have done little to entice investors. Mutual funds that invest in U.S. equities posted $753 million in inflows for the week ending Jan. 11 after $7.1 billion in outflows during the first week of the year, Investment Company Institute data show. Customers pulled about $63 billion for the final three months of 2011, the data show.

The S&P 500 has gained an average 6.1 percent during presidential election years, compared with 4.4 percent in the years that follow, according to Bloomberg data going back to 1952. The index has posted a positive return for the last seven months of those years 87 percent of the time, data from the Stock Trader’s Almanac show.

“Committed bears have to pull in their claws a little,” according to Brian Barish, who helps oversee about $7 billion as Denver-based president of Cambiar Investors LLC. “On the more bullish side, corporate earnings continue to be very good and stocks in a lot of areas are quite undemanding in terms of their valuations,” Barish said in a Jan. 17 phone interview. “We could have a good year.”

--With assistance from Lu Wang in New York. Editors: Chris Nagi, Jeff Sutherland

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Paulson’s Gold Fund Said to Fall 10.5% in 2011 as Metal Rises

December 25, 2011, 12:32 AM EST By Katherine Burton

Dec. 23 (Bloomberg) -- John Paulson, the billionaire money manager mired in the worst slump of his career, lost 10.5 percent in his Gold Fund this year even as the metal heads for its 11th straight annual gain, according to people familiar with the fund’s performance.

The fund, which invests in mining stocks and other gold- related securities, remains the best performer in Paulson’s $28 billion fund family this year. His Paulson Advantage Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, has fallen about 35 percent. The performance numbers for the two funds are from Dec. 28, 2010, through Dec. 20, 2011, and may not reflect returns for all shareholders, said the people, who asked not to be identified because the information is private.

Armel Leslie, a spokesman for Paulson, declined to comment on the firm’s returns.

Paulson & Co., based in New York, has lost money this year on investments including Citigroup Inc., Bank of America Corp. and Sino-Forest Corp., the Chinese forestry company accused by short-seller Carson Block of overstating timberland holdings. Paulson, 56, cut the so-called net exposure in his main hedge funds to 30 percent last month and reduced bullish bets across all his funds.

Net exposure is calculated by subtracting the percentage of a hedge fund’s short positions, or bets on falling securities, from its longs, or wagers on rising stocks and bonds.

Gold BUGS Index

Gold has climbed 13 percent this year, holding onto gains after peaking at $1,891 an ounce on Aug. 22. The 17-company NYSE Arca Gold BUGS Index fell 11 percent as investors fled equities amid the turmoil caused by the European sovereign-debt crisis.

Paulson was the largest holder of American depositary receipts in AngloGold Ashanti Ltd., the third-biggest gold producer. Paulson also owned shares or ADRs of Gold Fields Ltd., NovaGold Resources Inc., Randgold Resources Ltd., Agnico-Eagle Mines Ltd., Iamgold Corp., Barrick Gold Corp. and International Tower Hill Mines Ltd.

--Editors: Steven Crabill, Larry Edelman

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Freescale Rises After IPO Priced at Bottom of Reduced Range

May 26, 2011, 12:46 PM EDT By Lee Spears, Jason Kelly and Ian King

(Updates with CEO’s comment in third paragraph.)

May 26 (Bloomberg) -- Freescale Semiconductor Holdings rose on its first trading day as investors bet demand for automotive chips will help the company cut the debt burden that led underwriters to reduce its initial share-sale price.

Shares of the Austin, Texas-based company rose 95 cents, or 5.3 percent, to $18.95 at 12:17 p.m. on the New York Stock Exchange, trading under the ticker FSL. Freescale raised $783 million in its initial public offering, 25 percent less than it originally sought.

“We think all investors are ultimately going to do well,” Chief Executive Officer Richard Beyer said in a telephone interview today. The company was forced to cut its offer price because “the external market conditions are sketchy,” he said. “Would we have liked to have gone out a higher price? Yes.”

Freescale filed to sell shares to the public in February, saying it would use the proceeds to help reduce debt, which is about $7.5 billion. The company, the largest supplier of chips to the U.S. automobile industry, borrowed billions as it was taken private by Blackstone Group LP, TPG Capital, Carlyle Group and Permira Advisers LLP in a $17.6 billion transaction in 2006.

Freescale needs annual sales of about $4 billion to break even, Beyer said. The company could suffer a decline in revenue from the current level of about $4.8 billion and still be able to manage debt and invest in its business, he said.

Automotive Demand

Unlike makers of personal computer and mobile phone chips, Freescale is not experiencing a drop in demand for its products, said Beyer. Automotive demand remains strong, he said.

Freescale sold 43.5 million shares at $18 each in the IPO, according to a company statement. The company lowered the range yesterday to $18 to $20 from $22 to $24. The offering price reflects a 50 percent discount to the average of $36 that investors paid for the company, according to a regulatory filing.

“The balance sheet is a large issue,” said Cody Acree, a semiconductor analyst at Williams Financial in Dallas. “There are too many other places to put your money that don’t have this kind of issue.”

Freescale has been one of the worst performers among companies taken private during the buyout boom, with a net loss of $1.05 billion in 2010. Other private equity-backed IPOs this year have benefited their investors.

Financial Crisis

The initial share sale of Kinder Morgan Inc. raised $3.3 billion in February, valuing Carlyle Group’s stake at more than twice what it paid. Blackstone, Carlyle, KKR & Co. and Thomas H. Lee Partners LP similarly used the January IPO of Nielsen Holdings NV, to trim their stakes and reap profits. That offering raised $1.9 billion.

The global financial crisis hit Freescale less than two years after its owners closed their deal. The firms brought in Beyer, the former CEO of rival Intersil Corp., to close factories and design facilities, cut jobs, and get out of less profitable businesses. As markets recovered, Freescale also reduced borrowings by more than $2 billion after negotiating with bondholders.

Deutsche Bank AG, Citigroup Inc., Barclays Plc, Credit Suisse Group AG and JPMorgan Chase & Co. managed the offering.

Spirit Airlines Inc., the U.S. discount carrier that charges for carry-on items, raised $187.2 million in its IPO yesterday, 42 percent less than it originally planned. Spirit fell 50 cents, or 4.2 percent, to $11.50 at 12:16 p.m. on the Nasdaq Stock Market, trading under the ticker SAVE.

Reduced Offerings

Spirit and Freescale were forced to reduce their offerings even after Internet companies LinkedIn Corp. and Yandex NV expanded the sizes of their IPOs this month. LinkedIn shares more than doubled on its first day of trading, and Yandex surged 55 percent in its market debut.

Spirit, based in Miramar, Florida, sold 15.6 million shares at $12 each, it said in a statement. The carrier initially planned to raise as much as $320 million, according to a regulatory filing, before shrinking its offering from 20 million shares and lowering the range to $12 to $13 from a band of $14 to $16.

The carrier, which flies mostly between Florida and the Caribbean, had said it would use the funds for future plane purchases and to pay off debt. It is going public as jet fuel hovers near a three-year high, crimping industry profits and forcing carriers to raise fares. Gulfstream International Group Inc. was the last U.S. passenger airline to hold an IPO, selling shares in 2007. It filed for bankruptcy last year.

Private Equity

Private equity firm Indigo Partners LLC bought a majority stake in Spirit in 2006, and also invests in similar low-fare carriers outside the U.S., including Mexico’s Volaris. Oaktree Capital Management LP is the second-biggest investor.

Citigroup and Morgan Stanley led the Spirit IPO.

In other IPO news, Delphi Automotive Plc, the former parts unit of General Motors Co., registered for an initial public offering of $100 million. That amount is a placeholder to calculate filing fees, and the sale’s final size may vary, Troy, Michigan-based Delphi said yesterday in a regulatory filing.

The IPO may raise more than $1 billion, a person with knowledge of the plans said last week.

Delphi, once the largest U.S. auto-parts maker, exited bankruptcy restructuring in October 2009 with four classes of shares. Lenders including private equity firms Elliott Management Corp. and Silver Point Capital LP bought most of the original Delphi and still hold a controlling interest after Delphi bought back stakes from General Motors and the Pension Benefit Guaranty Corp. in March.

The offering’s proceeds will be used for general purposes, retiring debt and capital spending, Delphi said.

Goldman Sachs Group Inc. and JPMorgan are managing the deal.

--With assistance by Kevin Orland in Chicago. Editors: Lisa Rapaport, Tom Giles

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net Tom Giles at tgiles5@bloomberg.net

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