Secaucus, N.J.
A SUBSTANTIAL part of all stock trading in the United States takes place in a warehouse in a nondescript business park just off the New Jersey Turnpike.
Few humans are present in this vast technological sanctum, known as New York Four. Instead, the building, nearly the size of three football fields, is filled with long avenues of computer servers illuminated by energy-efficient blue phosphorescent light.
Countless metal cages contain racks of computers that perform all kinds of trades for Wall Street banks, hedge funds, brokerage firms and other institutions. And within just one of these cages — a tight space measuring 40 feet by 45 feet and festooned with blue and white wires — is an array of servers that together form the mechanized heart of one of the top four stock exchanges in the United States.
The exchange is called Direct Edge, hardly a household name. But as the lights pulse on its servers, you can almost see the holdings in your 401(k) zip by.
“This,” says Steven Bonanno, the chief technology officer of the exchange, looking on proudly, “is where everyone does their magic.”
In many of the world’s markets, nearly all stock trading is now conducted by computers talking to other computers at high speeds. As the machines have taken over, trading has been migrating from raucous, populated trading floors like those of the New York Stock Exchange to dozens of separate, rival electronic exchanges. They rely on data centers like this one, many in the suburbs of northern New Jersey.
While this “Tron” landscape is dominated by the titans of Wall Street, it affects nearly everyone who owns shares of stock or mutual funds, or who has a stake in a pension fund or works for a public company. For better or for worse, part of your wealth, your livelihood, is throbbing through these wires.
The advantages of this new technological order are clear. Trading costs have plummeted, and anyone can buy stocks from anywhere in seconds with the simple click of a mouse or a tap on a smartphone’s screen.
But some experts wonder whether the technology is getting dangerously out of control. Even apart from the huge amounts of energy the megacomputers consume, and the dangers of putting so much of the economy’s plumbing in one place, they wonder whether the new world is a fairer one — and whether traders with access to the fastest machines win at the expense of ordinary investors.
It also seems to be a much more hair-trigger market. The so-called flash crash in the market last May — when stock prices plunged hundreds of points before recovering — showed how unpredictable the new systems could be. Fear of this volatile, blindingly fast market may be why ordinary investors have been withdrawing money from domestic stock mutual funds —$90 billion worth since May, according to figures from the Investment Company Institute.
No one knows whether this is a better world, and that includes the regulators, who are struggling to keep up with the pace of innovation in the great technological arms race that the stock market has become.
WILLIAM O’BRIEN, a former lawyer for Goldman Sachs, crosses the Hudson River each day from New York to reach his Jersey City destination — a shiny blue building opposite a Courtyard by Marriott.
Mr. O’Brien, 40, works there as chief executive of Direct Edge, the young electronic stock exchange that is part of New Jersey’s burgeoning financial ecosystem. Seven miles away, in Secaucus, is the New York Four warehouse that houses Direct Edge’s servers. Another cluster of data centers, serving various companies, is five miles north, in Weehawken, at the western mouth of the Lincoln Tunnel. And yet another is planted 20 miles south on the New Jersey Turnpike, at Exit 12, in Carteret, N.J.
As Mr. O’Brien says, “New Jersey is the new heart of Wall Street.”
Direct Edge’s office demonstrates that it doesn’t take many people to become a major outfit in today’s electronic market. The firm, whose motto is “Everybody needs some edge,” has only 90 employees, most of them on this building’s sixth floor. There are lines of cubicles for programmers and a small operations room where two men watch a wall of screens, checking that market-order traffic moves smoothly and, of course, quickly. Direct Edge receives up to 10,000 orders a second.
Mr. O’Brien’s personal story reflects the recent history of stock-exchange upheaval. A fit, blue-eyed Wall Street veteran, who wears the monogram “W O’B” on his purple shirt cuff, Mr. O’Brien is the son of a seat holder and trader on the floor of the New York Stock Exchange in the 1970s, when the Big Board was by far the biggest game around.
But in the 1980s, Nasdaq, a new electronic competitor, challenged that dominance. And a bigger upheaval came in the late 1990s and early 2000s, after the Securities and Exchange Commission enacted a series of regulations to foster competition and drive down commission costs for ordinary investors.
These changes forced the New York Stock Exchange and Nasdaq to post orders electronically and execute them immediately, at the best price available in the United States — suddenly giving an advantage to start-up operations that were faster and cheaper. Mr. O’Brien went to work for one of them, called Brut. The N.Y.S.E. and Nasdaq fought back, buying up smaller rivals: Nasdaq, for example, acquired Brut. And to give itself greater firepower, the N.Y.S.E., which had been member-owned, became a public, for-profit company.
Brokerage firms and traders came to fear that a Nasdaq-N.Y.S.E. duopoly was asserting itself, one that would charge them heavily for the right to trade, so they created their own exchanges. One was Direct Edge, which formally became an exchange six months ago. Another, the BATS Exchange, is located in another unlikely capital of stock market trading: Kansas City, Mo.
Direct Edge now trails the N.Y.S.E. and Nasdaq in size; it vies with BATS for third place. Direct Edge is backed by a powerful roster of financial players: Goldman Sachs, Knight Capital, Citadel Securities and the International Securities Exchange, its largest shareholder. JPMorgan also holds a stake. Direct Edge still occupies the same building as its original founder, Knight Capital, in Jersey City.
Saturday, January 1, 2011
Asian Stocks Advance in Year to Post Biggest Two-Year Increase Since 2004
Asian stocks advanced last year, capping the MSCI Asia Pacific Index’s biggest two-year gain since 2004, as improving corporate earnings and U.S. economic stimulus measures offset concern over Europe’s sovereign debt crisis and China’s anti-inflation measures.
BHP Billiton Ltd. advanced 4.9 percent in 2010, pacing gains among metal and energy producers on higher commodity prices. Cnooc Ltd., China’s largest offshore oil company, surged 51 percent in Hong Kong. Canon Inc., a Japanese camera maker which makes about 80 percent of its sales abroad, gained 7.7 percent in Tokyo as the U.S. expanded measures to boost its economy. Hyundai Heavy Industries Co., the world’s largest shipbuilder, soared 155 percent in Seoul after third-quarter profit jumped.
The MSCI Asia Pacific Index climbed 14.3 percent last year to 137.70, extending 2009’s 34 percent gain, supported by central banks cutting borrowing costs and governments boosting spending to shore up their economies to tackle the global recession. The Asia Pacific gauge sank by a record in 2008 as the credit crisis and a deepening global recession pummeled corporate profits around the world.
“Investor confidence has swung back to a view that the global recovery is on track,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Ltd., which manages about $90 billion. “Despite lingering concerns, it should continue with some solid earnings gains. Global liquidity is plentiful, while companies are cashed up, boosting the prospects for mergers and acquisitions, dividend increases and buybacks.”
Regional Benchmarks
Hong Kong’s Hang Seng Index climbed 5.3 percent in the last year, extending 2009’s 52 percent increase, the steepest since 1999. South Korea’s Kospi Index jumped 22 percent, while Australia’s S&P/ASX 200 Index declined 2.6 percent.
Japan’s Nikkei 225 Stock Average lost 3 percent, as a strengthening yen dimmed the earnings prospects of some of the nation’s exporters. The yen was at its strongest annual average level since currencies began trading freely in 1971, according to data compiled by Bloomberg and based on each day’s closing price.
China’s Shanghai Composite Index declined 14 percent, the worst performer in Asia, as the government ordered banks to set aside more reserves six times last year and boosted rates to tame inflation and curb asset bubbles following record gains in lending and property prices. The benchmark also posted the biggest decline among 15 of the world’s largest stock markets.
Material Shares Lead
Material, energy and industrial stocks rose the most among the 10 industry groups tracked on the MSCI Asia Pacific Index in 2010, where stocks are valued at 14.8 times estimated earnings on average, compared with 14.7 times for the U.S. Standard & Poor’s 500 Index and 12.3 for the Europe Stoxx 600 Index.
BHP Billiton, the world’s largest mining company and Australia’s biggest oil producer, advanced 4.9 percent to A$45.25. The company was the leading mover on the MSCI Asia Pacific index last year. Rio Tinto Group, the world’s No. 3 mining company, advanced 14 percent to A$85.47. Cnooc surged 51 percent to HK$18.44 in Hong Kong, while Korea Zinc Co., which produces gold and silver, added 36 percent in Seoul.
Crude oil advanced in New York last year to the highest year-end level since 2007, while copper rose 33 percent to $4.447 a pound. Gold futures rallied 30 percent last year as Europe’s debt crisis drove investors to the precious metal as a haven.
Steep Gains
The MSCI Asia Pacific Index’s gains in 2010 take its two- year advance to 54 percent, the steepest since the period ended December 2004, when the region emerged from a retreat triggered by the bursting of the dot-com bubble in 2000. Gains in 2009 -- following 2008’s record 43 percent drop -- were spurred by a record lending and government stimulus measures in China, which helped pull the world economy out of recession.
“After markets bottom, they tend to have a quick recovery in the first year, before petering out and then stepping up again in the following years,” said James Holt, who helps manage about A$40 billion ($40 billion) at BlackRock Investment Management (Australia) Ltd.
The MSCI Asia Pacific gauge rose to a 21 month-high on April 15 as economic stimulus policies bore fruit, before dropping to an almost one-year low on May 25 amid concern slowing U.S. economic growth and China’s anti-inflation measures might choke off the recovery.
Europe, Fed Stimulus
The MSCI Asia Pacific Index has since risen 26.5 percent, to end the year at a 2 1/2-year high, as financial rescue plans for Greece and Ireland calmed concern that Europe’s sovereign debt crisis may spread to more countries, and after the U.S. Federal Reserve said Nov. 3 that it will buy an additional $600 billion of Treasuries to bolster growth in the world’s largest economy.
The Fed’s measures helped boost the shares of Asian exporters, with the MSCI Asia Pacific Consumer Discretionary Index rising 15 percent last year.
Li & Fung Ltd., the biggest supplier to retailers including Wal-Mart Stores Inc., jumped 40 percent to HK$45.10. Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, gained 48 percent to HK$21.45 as the global travel landscape brightened. Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, gained 19 percent to 949,000 won in Seoul. In Tokyo, Canon advanced 7.7 percent to 4,210 yen.
Earnings Prompt Buying
Analysts estimate earnings per share on the MSCI Asia Pacific index are set to rise 11 percent in the next 12 months, according to data compiled by Bloomberg.
Hyundai Heavy surged 155 percent to 443,000 won in Seoul, as the company said on Oct. 28 that net income climbed to 863.4 billion won ($770 million) from 533.8 billion won a year earlier, beating the 716.9 billion won average of 22 analyst estimates compiled by Bloomberg.
SJM Holdings Ltd., the casino operator controlled by Macau billionaire Stanley Ho, soared 188 percent to HK$12.34 in Hong Kong after saying in August that its first-half profit rose more than fourfold after it added more tables for high rollers from China. SJM posted the fourth-biggest increase on the MSCI Asia Pacific index for the year.
Profits Rise
PT Charoen Pokphand Indonesia, Indonesia’s biggest producer of chicken feed, posted the biggest gain on the MSCI Asia Pacific index last year, surging 309 percent to close at 1,840 rupiah on Dec. 30, the final day of trade for the year in Jakarta. The company said in October that nine-month net income jumped 50 percent to 1.6 trillion rupiah.
Brilliance China Automotive Holdings Ltd., which makes vehicles with Bayerische Motoren Werke AG and Toyota Motor Corp., showed the fifth-biggest advance on the Asian index last year, jumping 171 percent to HK$5.93. The company said it returned to a profit in the first half of 2010 as economic growth spurred demand for luxury sedans in China, the world’s biggest auto market.
“Investors will look for resolution to Europe’s debt issues and China’s inflation problems, but risk appetite will be better next year than it was this year,” said Prasad Patkar, who helps manage about $1.8 in Sydney at Platypus Asset Management Ltd.
BHP Billiton Ltd. advanced 4.9 percent in 2010, pacing gains among metal and energy producers on higher commodity prices. Cnooc Ltd., China’s largest offshore oil company, surged 51 percent in Hong Kong. Canon Inc., a Japanese camera maker which makes about 80 percent of its sales abroad, gained 7.7 percent in Tokyo as the U.S. expanded measures to boost its economy. Hyundai Heavy Industries Co., the world’s largest shipbuilder, soared 155 percent in Seoul after third-quarter profit jumped.
The MSCI Asia Pacific Index climbed 14.3 percent last year to 137.70, extending 2009’s 34 percent gain, supported by central banks cutting borrowing costs and governments boosting spending to shore up their economies to tackle the global recession. The Asia Pacific gauge sank by a record in 2008 as the credit crisis and a deepening global recession pummeled corporate profits around the world.
“Investor confidence has swung back to a view that the global recovery is on track,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Ltd., which manages about $90 billion. “Despite lingering concerns, it should continue with some solid earnings gains. Global liquidity is plentiful, while companies are cashed up, boosting the prospects for mergers and acquisitions, dividend increases and buybacks.”
Regional Benchmarks
Hong Kong’s Hang Seng Index climbed 5.3 percent in the last year, extending 2009’s 52 percent increase, the steepest since 1999. South Korea’s Kospi Index jumped 22 percent, while Australia’s S&P/ASX 200 Index declined 2.6 percent.
Japan’s Nikkei 225 Stock Average lost 3 percent, as a strengthening yen dimmed the earnings prospects of some of the nation’s exporters. The yen was at its strongest annual average level since currencies began trading freely in 1971, according to data compiled by Bloomberg and based on each day’s closing price.
China’s Shanghai Composite Index declined 14 percent, the worst performer in Asia, as the government ordered banks to set aside more reserves six times last year and boosted rates to tame inflation and curb asset bubbles following record gains in lending and property prices. The benchmark also posted the biggest decline among 15 of the world’s largest stock markets.
Material Shares Lead
Material, energy and industrial stocks rose the most among the 10 industry groups tracked on the MSCI Asia Pacific Index in 2010, where stocks are valued at 14.8 times estimated earnings on average, compared with 14.7 times for the U.S. Standard & Poor’s 500 Index and 12.3 for the Europe Stoxx 600 Index.
BHP Billiton, the world’s largest mining company and Australia’s biggest oil producer, advanced 4.9 percent to A$45.25. The company was the leading mover on the MSCI Asia Pacific index last year. Rio Tinto Group, the world’s No. 3 mining company, advanced 14 percent to A$85.47. Cnooc surged 51 percent to HK$18.44 in Hong Kong, while Korea Zinc Co., which produces gold and silver, added 36 percent in Seoul.
Crude oil advanced in New York last year to the highest year-end level since 2007, while copper rose 33 percent to $4.447 a pound. Gold futures rallied 30 percent last year as Europe’s debt crisis drove investors to the precious metal as a haven.
Steep Gains
The MSCI Asia Pacific Index’s gains in 2010 take its two- year advance to 54 percent, the steepest since the period ended December 2004, when the region emerged from a retreat triggered by the bursting of the dot-com bubble in 2000. Gains in 2009 -- following 2008’s record 43 percent drop -- were spurred by a record lending and government stimulus measures in China, which helped pull the world economy out of recession.
“After markets bottom, they tend to have a quick recovery in the first year, before petering out and then stepping up again in the following years,” said James Holt, who helps manage about A$40 billion ($40 billion) at BlackRock Investment Management (Australia) Ltd.
The MSCI Asia Pacific gauge rose to a 21 month-high on April 15 as economic stimulus policies bore fruit, before dropping to an almost one-year low on May 25 amid concern slowing U.S. economic growth and China’s anti-inflation measures might choke off the recovery.
Europe, Fed Stimulus
The MSCI Asia Pacific Index has since risen 26.5 percent, to end the year at a 2 1/2-year high, as financial rescue plans for Greece and Ireland calmed concern that Europe’s sovereign debt crisis may spread to more countries, and after the U.S. Federal Reserve said Nov. 3 that it will buy an additional $600 billion of Treasuries to bolster growth in the world’s largest economy.
The Fed’s measures helped boost the shares of Asian exporters, with the MSCI Asia Pacific Consumer Discretionary Index rising 15 percent last year.
Li & Fung Ltd., the biggest supplier to retailers including Wal-Mart Stores Inc., jumped 40 percent to HK$45.10. Cathay Pacific Airways Ltd., Hong Kong’s biggest carrier, gained 48 percent to HK$21.45 as the global travel landscape brightened. Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, gained 19 percent to 949,000 won in Seoul. In Tokyo, Canon advanced 7.7 percent to 4,210 yen.
Earnings Prompt Buying
Analysts estimate earnings per share on the MSCI Asia Pacific index are set to rise 11 percent in the next 12 months, according to data compiled by Bloomberg.
Hyundai Heavy surged 155 percent to 443,000 won in Seoul, as the company said on Oct. 28 that net income climbed to 863.4 billion won ($770 million) from 533.8 billion won a year earlier, beating the 716.9 billion won average of 22 analyst estimates compiled by Bloomberg.
SJM Holdings Ltd., the casino operator controlled by Macau billionaire Stanley Ho, soared 188 percent to HK$12.34 in Hong Kong after saying in August that its first-half profit rose more than fourfold after it added more tables for high rollers from China. SJM posted the fourth-biggest increase on the MSCI Asia Pacific index for the year.
Profits Rise
PT Charoen Pokphand Indonesia, Indonesia’s biggest producer of chicken feed, posted the biggest gain on the MSCI Asia Pacific index last year, surging 309 percent to close at 1,840 rupiah on Dec. 30, the final day of trade for the year in Jakarta. The company said in October that nine-month net income jumped 50 percent to 1.6 trillion rupiah.
Brilliance China Automotive Holdings Ltd., which makes vehicles with Bayerische Motoren Werke AG and Toyota Motor Corp., showed the fifth-biggest advance on the Asian index last year, jumping 171 percent to HK$5.93. The company said it returned to a profit in the first half of 2010 as economic growth spurred demand for luxury sedans in China, the world’s biggest auto market.
“Investors will look for resolution to Europe’s debt issues and China’s inflation problems, but risk appetite will be better next year than it was this year,” said Prasad Patkar, who helps manage about $1.8 in Sydney at Platypus Asset Management Ltd.
Tata Nano Sales Rebound From Record Low as Warranty, Financing Win Buyers
Tata Motors Ltd.’s sales of the Nano, the world’s cheapest car, rebounded in December from a record low after the automaker more than doubled warranty lengths and offered easier financing terms.
Sales rose to 5,784 from 509 in November, according to a statement from the Mumbai-based automaker today. The December tally, a 60 percent increase from a year earlier, was below the 9,000 monthly sales record achieved in July.
Tata has begun television advertisements, added more sales points in smaller towns and introduced a 99 rupee ($2)-a- month maintenance option to help revive sales of the Nano, which costs as little as 137,555 rupees in New Delhi. Sales had fallen on a month-on-month basis since July because of price increases and safety concerns following at least three fires.
“Tata Motors is now focusing on the Nano because its reputation is riding on it,” said Umesh Karne, a Mumbai-based analyst with BRICS Securities Ltd., who has a ‘buy’ rating on the stock. “Measures such as easy financing and the maintenance offer have reassured customers.”
The automaker in December lengthened warranties to four years or 60,000 kilometers (37,282 miles) and added the maintenance plan. The company opened a factory in June with the capacity to build 250,000 Nanos a year.
Tata’s total vehicle sales, including trucks and buses, rose 31 percent from a year earlier in December to 67,441, according to the statement.
Second-Best Performer
The automaker in November said it would retrofit Nano cars with additional protection in exhaust and electrical systems after the fires. Investigations concluded that the reasons for the fires were “specific” to the cars involved, the company has said.
Tata Motors rose 0.6 percent to 1,308.35 rupees in Mumbai trading yesterday. The shares gained 65 percent last year, the second-best performer in the benchmark Sensitive Index of the Bombay Stock Exchange.
The November sales tally was the lowest for the Nano since the 624-cc car went on sale in 2009. Ratan Tata, the automaker’s chairman, decided to develop the car after seeing a family riding on a scooter.
The Nano is currently sold in 12 Indian states as the company works through initial orders and ramps up production. Tata expects to begin nationwide sales by March.
Sales rose to 5,784 from 509 in November, according to a statement from the Mumbai-based automaker today. The December tally, a 60 percent increase from a year earlier, was below the 9,000 monthly sales record achieved in July.
Tata has begun television advertisements, added more sales points in smaller towns and introduced a 99 rupee ($2)-a- month maintenance option to help revive sales of the Nano, which costs as little as 137,555 rupees in New Delhi. Sales had fallen on a month-on-month basis since July because of price increases and safety concerns following at least three fires.
“Tata Motors is now focusing on the Nano because its reputation is riding on it,” said Umesh Karne, a Mumbai-based analyst with BRICS Securities Ltd., who has a ‘buy’ rating on the stock. “Measures such as easy financing and the maintenance offer have reassured customers.”
The automaker in December lengthened warranties to four years or 60,000 kilometers (37,282 miles) and added the maintenance plan. The company opened a factory in June with the capacity to build 250,000 Nanos a year.
Tata’s total vehicle sales, including trucks and buses, rose 31 percent from a year earlier in December to 67,441, according to the statement.
Second-Best Performer
The automaker in November said it would retrofit Nano cars with additional protection in exhaust and electrical systems after the fires. Investigations concluded that the reasons for the fires were “specific” to the cars involved, the company has said.
Tata Motors rose 0.6 percent to 1,308.35 rupees in Mumbai trading yesterday. The shares gained 65 percent last year, the second-best performer in the benchmark Sensitive Index of the Bombay Stock Exchange.
The November sales tally was the lowest for the Nano since the 624-cc car went on sale in 2009. Ratan Tata, the automaker’s chairman, decided to develop the car after seeing a family riding on a scooter.
The Nano is currently sold in 12 Indian states as the company works through initial orders and ramps up production. Tata expects to begin nationwide sales by March.
Indian group buys Grosvenor House
An Indian company run by a billionaire industrialist has taken ownership of one of London’s landmark hotels after Royal Bank of Scotland, the UK taxpayer-backed bank, sold Grosvenor House for £470m.
Sahara India Pariwar, the Indian conglomerate run by Subrata Roy, won the bid for the Park Lane hotel on Thursday after months of negotiations with the bank.
EDITOR’S CHOICE
In depth: M&A - Dec-05
Hilton and Starwood settle dispute - Dec-23
Deutsche Bank takes gamble on casino - Dec-28
London hotel faces redevelopment - Nov-08
RBS took control of Grosvenor House in 2003 when Le Meridien, the hotel operator, fell into administration. The hotel was shifted into RBS’s non-core division and earmarked for sale as part of the bank’s efforts to shrink its balance sheet.
RBS owned a long lease on the five-star, 494-room Mayfair hotel, which will continue to be operated by Marriott International.
Sahara India Pariwar, which paid cash for the hotel, fought off competition from at least two other shortlisted bidders, thought to include sovereign and state wealth funds from Singapore, Qatar and China. The Candy brothers, the upmarket developers, were initially interested in the sale but were not involved in the final stages.
The Sahara conglomerate, which specialises in media and sport investment, had been the favourite to secure the deal.
Mr Roy is considered one of India’s most flamboyant businessmen, with strong political ties and contacts in the Mumbai film industry.
In recent months his company has held talks about rescuing Metro-Goldwyn-Mayer, the debt-ridden Hollywood studio, and had also expressed an interest in acquiring Liverpool Football Club.
Back on its home ground, Sahara sponsors India’s national cricket and hockey teams and spent a record $370m to buy an Indian Premier League cricket team.
The Grosvenor House Hotel opened in 1929 on the site of the former London residence of the Dukes of Westminster. It was refurbished by Marriott International and relaunched under the JW Marriott brand in 2008. It is the venue for many of the capital’s black-tie events.
The sale to Sahara is the latest in a string of hotel disposals by RBS after a lending spree in the boom years left it with a large portfolio of real estate. The bank has sold six hotels this year, including the Cumberland hotel in London, which was bought by Starwood Capital, the private equity firm, and four Hilton-operated hotels.
Scaling back its commercial real estate exposure is a key part of the run-off of non-core assets, which fell from £258bn at the start of 2009 to £154bn by the third quarter of 2010.
Sahara India Pariwar, the Indian conglomerate run by Subrata Roy, won the bid for the Park Lane hotel on Thursday after months of negotiations with the bank.
EDITOR’S CHOICE
In depth: M&A - Dec-05
Hilton and Starwood settle dispute - Dec-23
Deutsche Bank takes gamble on casino - Dec-28
London hotel faces redevelopment - Nov-08
RBS took control of Grosvenor House in 2003 when Le Meridien, the hotel operator, fell into administration. The hotel was shifted into RBS’s non-core division and earmarked for sale as part of the bank’s efforts to shrink its balance sheet.
RBS owned a long lease on the five-star, 494-room Mayfair hotel, which will continue to be operated by Marriott International.
Sahara India Pariwar, which paid cash for the hotel, fought off competition from at least two other shortlisted bidders, thought to include sovereign and state wealth funds from Singapore, Qatar and China. The Candy brothers, the upmarket developers, were initially interested in the sale but were not involved in the final stages.
The Sahara conglomerate, which specialises in media and sport investment, had been the favourite to secure the deal.
Mr Roy is considered one of India’s most flamboyant businessmen, with strong political ties and contacts in the Mumbai film industry.
In recent months his company has held talks about rescuing Metro-Goldwyn-Mayer, the debt-ridden Hollywood studio, and had also expressed an interest in acquiring Liverpool Football Club.
Back on its home ground, Sahara sponsors India’s national cricket and hockey teams and spent a record $370m to buy an Indian Premier League cricket team.
The Grosvenor House Hotel opened in 1929 on the site of the former London residence of the Dukes of Westminster. It was refurbished by Marriott International and relaunched under the JW Marriott brand in 2008. It is the venue for many of the capital’s black-tie events.
The sale to Sahara is the latest in a string of hotel disposals by RBS after a lending spree in the boom years left it with a large portfolio of real estate. The bank has sold six hotels this year, including the Cumberland hotel in London, which was bought by Starwood Capital, the private equity firm, and four Hilton-operated hotels.
Scaling back its commercial real estate exposure is a key part of the run-off of non-core assets, which fell from £258bn at the start of 2009 to £154bn by the third quarter of 2010.
Reliance Industries plans US expansion
Mukesh Ambani, India’s richest man and the head of the Reliance Industries business empire, is planning to expand his energy operations in the US, in a move underscoring how attractive the US remains in spite of its current economic difficulties.
The billionaire who expanded his father’s petrochemicals company into India’s most powerful conglomerate, plans to spend $10bn-$12bn in an expansion of Reliance’s US business, according to people he has confided in.
Mr Ambani's determination to grow outside India is part of his ambition to build a world-class company with a global reach – an ambition impossible to achieve if he operates only in India. Mr Ambani has told associates he considers the US, with India, as the “safest place” in the world in which to invest, the people added.
“Mukesh Ambani has become too big for India,” said the chairman of one of India’s leading banking groups. “In America, nobody looks at a billionaire.”
Reliance Industries, which has annual revenues of $44bn, operates the world’s biggest refinery complex on India’s west coast and the country’s largest gasfield on its east coast. The company is also expanding in what Mr Ambani calls “industries of the future” in India, such as telecommunications, hospitality and retail.
Mr Ambani’s decision comes at a time when the Indian business community is increasingly disillusioned with the government, in spite of an 8-9 per cent economic growth rate. A series of scandals and accusations of government inaction have led to frustration and a sense that India is losing its momentum among Indian corporations.
“Everyone in corporate India is risk-averse,” said the chief executive of one large infrastructure company. “They have done their asset accumulation and now they wish to derisk, and one way to derisk is to go offshore.”
Reliance has bought a series of stakes in US shale gas ventures this year, spending almost $3.5bn. Mr Ambani has said in the past he believes that shale gas will be increasingly attractive as a source of energy thanks to technological breakthroughs and the desire in the US to lessen dependence on foreign oil supply.
Reliance bought a 45 per cent holding in the Eagle Ford shale gas field in south Texas. It also paid $1.7bn for a joint venture with Atlas Energy, which has a shale gas field on the borders of Pennsylvania, West Virginia and New York states.
Mr Ambani is likely to seek local partners as he develops his strategy for North America. His preference is for partnership with a publicly listed entity, in the interests of transparency.
However, one potential link-up could be with KKR, the private equity firm. Henry Kravis, its co-founder and a frequent visitor to India, will be in Mumbai next week, and he and Mr Ambani plan to dine together.
KKR has deep knowledge of the US energy industry, through investments ranging from pipeline companies to utilities, such as its joint investment with TPG in Energy Future Holdings, the former TXU.
Reliance’s international expansion suffered a setback this year when an attempt to buy LyondellBasell for $14.5bn was thwarted by a management-backed debt restructuring proposal for the the Dutch chemicals group.
The billionaire who expanded his father’s petrochemicals company into India’s most powerful conglomerate, plans to spend $10bn-$12bn in an expansion of Reliance’s US business, according to people he has confided in.
Mr Ambani's determination to grow outside India is part of his ambition to build a world-class company with a global reach – an ambition impossible to achieve if he operates only in India. Mr Ambani has told associates he considers the US, with India, as the “safest place” in the world in which to invest, the people added.
“Mukesh Ambani has become too big for India,” said the chairman of one of India’s leading banking groups. “In America, nobody looks at a billionaire.”
Reliance Industries, which has annual revenues of $44bn, operates the world’s biggest refinery complex on India’s west coast and the country’s largest gasfield on its east coast. The company is also expanding in what Mr Ambani calls “industries of the future” in India, such as telecommunications, hospitality and retail.
Mr Ambani’s decision comes at a time when the Indian business community is increasingly disillusioned with the government, in spite of an 8-9 per cent economic growth rate. A series of scandals and accusations of government inaction have led to frustration and a sense that India is losing its momentum among Indian corporations.
“Everyone in corporate India is risk-averse,” said the chief executive of one large infrastructure company. “They have done their asset accumulation and now they wish to derisk, and one way to derisk is to go offshore.”
Reliance has bought a series of stakes in US shale gas ventures this year, spending almost $3.5bn. Mr Ambani has said in the past he believes that shale gas will be increasingly attractive as a source of energy thanks to technological breakthroughs and the desire in the US to lessen dependence on foreign oil supply.
Reliance bought a 45 per cent holding in the Eagle Ford shale gas field in south Texas. It also paid $1.7bn for a joint venture with Atlas Energy, which has a shale gas field on the borders of Pennsylvania, West Virginia and New York states.
Mr Ambani is likely to seek local partners as he develops his strategy for North America. His preference is for partnership with a publicly listed entity, in the interests of transparency.
However, one potential link-up could be with KKR, the private equity firm. Henry Kravis, its co-founder and a frequent visitor to India, will be in Mumbai next week, and he and Mr Ambani plan to dine together.
KKR has deep knowledge of the US energy industry, through investments ranging from pipeline companies to utilities, such as its joint investment with TPG in Energy Future Holdings, the former TXU.
Reliance’s international expansion suffered a setback this year when an attempt to buy LyondellBasell for $14.5bn was thwarted by a management-backed debt restructuring proposal for the the Dutch chemicals group.
Wednesday, December 29, 2010
John Hancock Tower Sells for $930 Million
The John Hancock Tower, a 62-story glass skyscraper in Boston’s Back Bay, was one of the first real estate trophies to run into trouble when the speculative property boom abruptly ended two years ago.
With the market in free fall, Normandy Real Estate Partners and Five Mile Capital Partners bought the building at a foreclosure auction 18 months ago for $660.6 million, or about half the price in 2006.
At 4 p.m. on Wednesday, Normandy and Five Mile officially sold the Hancock Tower to Boston Properties for $930 million.
“It is an epic conclusion for an iconic landmark,” said Finn Wentworth, a founding partner at Normandy, a real estate firm based in Morristown, N.J. “It’s due to a combination of real estate savvy and capital savvy.”
Wednesday’s deal reflects the current optimism coursing through the industry. Commercial buildings have recovered some of their value, and investors are looking to buy solid properties with good cash flow. Commercial mortgage securities also look healthier — although many experts warn that billions of dollars of loans are coming due in the next couple of years.
The turnaround of the Hancock Tower began with a risky plan in 2008 to buy pieces of the mezzanine debt, a junior debt that is less likely to be repaid. The goal of Normandy and Five Mile was to take control through foreclosure if the owner defaulted on the loans.
At the time no one knew if it would work, or even how much the building was worth.
Now, the strategy provides a template for other commercial real estate deals.
In 2009, the owner, Broadway Partners, defaulted on $472.1 million in secondary loans, but a senior mortgage remained current. Normandy and Five Mile bought more than $200 million in mezzanine loans from Lehman Brothers, the Royal Bank of Scotland and Greenwich Capital for about 30 cents on the dollar.
At the foreclosure auction on March 31, 2009, Normandy and Five Mile were the sole bidders, offering $20 million and taking on the senior mortgage.
“It was a pretty bold move, a calculated risk,” said Kevin O’Shea, the partner at Allen & Overy who represented Normandy. “They were rewarded when property values stabilized and core properties like the Hancock regained their value.”
Not everyone who has pursued the strategy has been so lucky.
William A. Ackman of Pershing Square Capital Management and Michael L. Ashner of Winthrop Realty Trust failed to gain control of the sprawling Stuyvesant Town and Peter Cooper Village this year. The two partners bought a $300 million swath of secondary loans on the Manhattan complexes for $45 million.
But their plan was foiled when the courts ruled that Mr. Ackman had to pay off the $3 billion senior mortgage before he could foreclose. Today, the 11,200-apartment properties are controlled by CW Capital, which represents the senior lenders.
“I have learned from prior experience that sometimes the better part of valor in an investment situation is to move on,” Mr. Ackman said of the deal in his third-quarter investment letter.
The Hancock Tower, a Boston landmark since it was built in 1975, has been a barometer for the real estate boom and bust.
In the months before the merger of John Hancock and Manulife Financial of Canada, the American insurer sold the Hancock Tower and three related properties in 2003 for $926.8 million to Alan M. Leventhal, the founder of Beacon Capital Partners.
In a transaction typical of that period, Mr. Leventhal put up $304 million, or roughly one-third of the purchase price, and took on a $623 million mortgage on the four properties. Beacon valued just the Hancock Tower and a nearby garage at about $639 million, according to real estate executives familiar with the deal.
Three years later, the commercial real estate market was roaring, fed by billions of dollars from foreign investors, pension funds and insurers and cheap debt from Wall Street banks and hedge funds. Mortgages, in turn, were packaged with other loans into a securities and sold to investors — freeing even more money to make deals.
With the money flowing, developers, private equity firms and hedge funds were able to buy properties with increasingly less cash. Many borrowed up to 80 percent of the purchase price, adding sizable second mortgages or mezzanine debt.
As the market neared its peak, Scott Lawlor, founder of Broadway Partners, a highflying money manager, paid $3.4 billion for the Hancock Tower and nine other properties in December 2006. The deal valued Hancock Tower and the garage at $1.35 billion, more than double the price in 2003, according to people familiar with the deal. But it also loaded the property with debt, with a mortgage and secondary loans that covered about 82 percent of the purchase price.
“This is a significant group of marquee properties in highly desirable markets that we are confident will deliver strong risk-adjusted returns to our investors,” Mr. Lawlor said at the time.
By the time Lehman Brothers collapsed in September 2008, property values had plunged by a third in Boston and elsewhere, according to analysts. Corporate tenants, like the Hill Holiday ad agency at the Hancock Tower, balked at constantly rising rents and moved out.
Normandy and Five Mile took over in the spring of 2009. Along the way, they refurbished the lobby and created an underground parking garage for top executives, spending more than $40 million on improvements. They were also able to offer lower rents than previous owners. And they scored a major coup in May when Bain Capital signed a lease for seven floors, a tenant lured away from a building owned by Boston Properties.
“Besides navigating the debt stack,” said Mr. Wentworth, “we created value the old fashioned way.”
In October, the two firms put the Hancock Tower on the auction block. Boston Properties was the winner, agreeing to put up $289.5 million and assume the $640.5 million mortgage.
The deal closed on Wednesday.
With the market in free fall, Normandy Real Estate Partners and Five Mile Capital Partners bought the building at a foreclosure auction 18 months ago for $660.6 million, or about half the price in 2006.
At 4 p.m. on Wednesday, Normandy and Five Mile officially sold the Hancock Tower to Boston Properties for $930 million.
“It is an epic conclusion for an iconic landmark,” said Finn Wentworth, a founding partner at Normandy, a real estate firm based in Morristown, N.J. “It’s due to a combination of real estate savvy and capital savvy.”
Wednesday’s deal reflects the current optimism coursing through the industry. Commercial buildings have recovered some of their value, and investors are looking to buy solid properties with good cash flow. Commercial mortgage securities also look healthier — although many experts warn that billions of dollars of loans are coming due in the next couple of years.
The turnaround of the Hancock Tower began with a risky plan in 2008 to buy pieces of the mezzanine debt, a junior debt that is less likely to be repaid. The goal of Normandy and Five Mile was to take control through foreclosure if the owner defaulted on the loans.
At the time no one knew if it would work, or even how much the building was worth.
Now, the strategy provides a template for other commercial real estate deals.
In 2009, the owner, Broadway Partners, defaulted on $472.1 million in secondary loans, but a senior mortgage remained current. Normandy and Five Mile bought more than $200 million in mezzanine loans from Lehman Brothers, the Royal Bank of Scotland and Greenwich Capital for about 30 cents on the dollar.
At the foreclosure auction on March 31, 2009, Normandy and Five Mile were the sole bidders, offering $20 million and taking on the senior mortgage.
“It was a pretty bold move, a calculated risk,” said Kevin O’Shea, the partner at Allen & Overy who represented Normandy. “They were rewarded when property values stabilized and core properties like the Hancock regained their value.”
Not everyone who has pursued the strategy has been so lucky.
William A. Ackman of Pershing Square Capital Management and Michael L. Ashner of Winthrop Realty Trust failed to gain control of the sprawling Stuyvesant Town and Peter Cooper Village this year. The two partners bought a $300 million swath of secondary loans on the Manhattan complexes for $45 million.
But their plan was foiled when the courts ruled that Mr. Ackman had to pay off the $3 billion senior mortgage before he could foreclose. Today, the 11,200-apartment properties are controlled by CW Capital, which represents the senior lenders.
“I have learned from prior experience that sometimes the better part of valor in an investment situation is to move on,” Mr. Ackman said of the deal in his third-quarter investment letter.
The Hancock Tower, a Boston landmark since it was built in 1975, has been a barometer for the real estate boom and bust.
In the months before the merger of John Hancock and Manulife Financial of Canada, the American insurer sold the Hancock Tower and three related properties in 2003 for $926.8 million to Alan M. Leventhal, the founder of Beacon Capital Partners.
In a transaction typical of that period, Mr. Leventhal put up $304 million, or roughly one-third of the purchase price, and took on a $623 million mortgage on the four properties. Beacon valued just the Hancock Tower and a nearby garage at about $639 million, according to real estate executives familiar with the deal.
Three years later, the commercial real estate market was roaring, fed by billions of dollars from foreign investors, pension funds and insurers and cheap debt from Wall Street banks and hedge funds. Mortgages, in turn, were packaged with other loans into a securities and sold to investors — freeing even more money to make deals.
With the money flowing, developers, private equity firms and hedge funds were able to buy properties with increasingly less cash. Many borrowed up to 80 percent of the purchase price, adding sizable second mortgages or mezzanine debt.
As the market neared its peak, Scott Lawlor, founder of Broadway Partners, a highflying money manager, paid $3.4 billion for the Hancock Tower and nine other properties in December 2006. The deal valued Hancock Tower and the garage at $1.35 billion, more than double the price in 2003, according to people familiar with the deal. But it also loaded the property with debt, with a mortgage and secondary loans that covered about 82 percent of the purchase price.
“This is a significant group of marquee properties in highly desirable markets that we are confident will deliver strong risk-adjusted returns to our investors,” Mr. Lawlor said at the time.
By the time Lehman Brothers collapsed in September 2008, property values had plunged by a third in Boston and elsewhere, according to analysts. Corporate tenants, like the Hill Holiday ad agency at the Hancock Tower, balked at constantly rising rents and moved out.
Normandy and Five Mile took over in the spring of 2009. Along the way, they refurbished the lobby and created an underground parking garage for top executives, spending more than $40 million on improvements. They were also able to offer lower rents than previous owners. And they scored a major coup in May when Bain Capital signed a lease for seven floors, a tenant lured away from a building owned by Boston Properties.
“Besides navigating the debt stack,” said Mr. Wentworth, “we created value the old fashioned way.”
In October, the two firms put the Hancock Tower on the auction block. Boston Properties was the winner, agreeing to put up $289.5 million and assume the $640.5 million mortgage.
The deal closed on Wednesday.
Asian Stocks Fluctuate as Japanese Exporters Fall, Commodity Shares Climb
Asian stocks fluctuated as the dollar weakened to a seven-week low against the yen, damping the outlook for Japanese export earnings. Commodity companies rose.
Toyota Motor Corp., a Japanese carmaker that counts North America as its biggest overseas market, declined 0.6 percent in Tokyo. Nintendo Co., a Japanese maker of video-game machines, dropped 1.3 percent. BHP Billiton Ltd., the world’s biggest mining company, increased 0.7 percent in Sydney. Newcrest Mining Ltd., Australia’s largest gold producer, climbed 0.6 percent.
“The yen’s appreciation will hang over the market” in Japan, said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “I don’t think people are rushing to sell stocks to lock in profits, because there are strong expectations that stocks will rise next year.”
The MSCI Asia Pacific Index rose 0.3 percent to 137.25 as of 9:44 a.m. in Tokyo, with more than three times as many stocks declining as advancing. The gauge has climbed 14 percent this year, and closed yesterday at its highest level since June 2008, on speculation that growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb inflation and concern about the pace of the U.S. economic rebound.
Japan’s Nikkei 225 Stock Average lost 0.5 percent, South Korea’s Kospi Index gained 0.2 percent and Australia’s S&P/ASX 200 Index increased 0.5 percent.
Futures on the U.S. Standard & Poor’s 500 Index climbed 0.1 percent. The index gained 0.1 percent yesterday, led by energy companies as crude oil remained above $90 a barrel for a fifth straight day.
Toyota, Honda, Nintendo
Toyota, Honda Motor Co. and Nintendo were among the heaviest drags on the MSCI Asia Pacific Index, and the largest contributors to the decline in Japan’s broad Topix index.
Toyota, the world’s biggest carmaker, dropped 0.6 percent to 3,230 yen. Honda, an automaker that receives 43 percent of its revenue from North America, slid 0.8 percent to 3,230 yen. Nintendo, the world’s largest maker of video-game players, lost 1.3 percent to 24,110 yen.
The dollar weakened against the yen for an eighth straight session yesterday, the longest streak since 2004. It depreciated to 81.40 yen today, the lowest intraday level since Nov. 9. A weaker dollar reduces the value of U.S. income at Japanese companies when converted into their home currency.
The yen is headed for its strongest annual average level against the dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg and based on each day’s closing price.
Toyota Motor Corp., a Japanese carmaker that counts North America as its biggest overseas market, declined 0.6 percent in Tokyo. Nintendo Co., a Japanese maker of video-game machines, dropped 1.3 percent. BHP Billiton Ltd., the world’s biggest mining company, increased 0.7 percent in Sydney. Newcrest Mining Ltd., Australia’s largest gold producer, climbed 0.6 percent.
“The yen’s appreciation will hang over the market” in Japan, said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “I don’t think people are rushing to sell stocks to lock in profits, because there are strong expectations that stocks will rise next year.”
The MSCI Asia Pacific Index rose 0.3 percent to 137.25 as of 9:44 a.m. in Tokyo, with more than three times as many stocks declining as advancing. The gauge has climbed 14 percent this year, and closed yesterday at its highest level since June 2008, on speculation that growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb inflation and concern about the pace of the U.S. economic rebound.
Japan’s Nikkei 225 Stock Average lost 0.5 percent, South Korea’s Kospi Index gained 0.2 percent and Australia’s S&P/ASX 200 Index increased 0.5 percent.
Futures on the U.S. Standard & Poor’s 500 Index climbed 0.1 percent. The index gained 0.1 percent yesterday, led by energy companies as crude oil remained above $90 a barrel for a fifth straight day.
Toyota, Honda, Nintendo
Toyota, Honda Motor Co. and Nintendo were among the heaviest drags on the MSCI Asia Pacific Index, and the largest contributors to the decline in Japan’s broad Topix index.
Toyota, the world’s biggest carmaker, dropped 0.6 percent to 3,230 yen. Honda, an automaker that receives 43 percent of its revenue from North America, slid 0.8 percent to 3,230 yen. Nintendo, the world’s largest maker of video-game players, lost 1.3 percent to 24,110 yen.
The dollar weakened against the yen for an eighth straight session yesterday, the longest streak since 2004. It depreciated to 81.40 yen today, the lowest intraday level since Nov. 9. A weaker dollar reduces the value of U.S. income at Japanese companies when converted into their home currency.
The yen is headed for its strongest annual average level against the dollar since currencies began trading freely in 1971, according to data compiled by Bloomberg and based on each day’s closing price.
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