Troubled hedge fund sitting on real estate gold
Hedge fund manager Steve Cohen has at least one easy way to make up some of the $1.2 billion he recently agreed to pay the government: Cash in on SAC Capital Advisors' sprawling real estate holdings that stretch across three continents.
Much has been made of billionaire Cohen's personal properties.
His homes, all in the New York City area, include a $23.1 million, 35,000 square foot mansion in Greenwich, Conn.; a $115 million midtown duplex already for sale; two West Village residences valued at $23.4 million and $38.8 million, respectively; and adjacent homes in East Hampton, N.Y. worth an estimated $62.5 million and $18 million respectively based on purchase prices, according to a recent Forbes report.
What has gotten less attention is Cohen's array of luxury office space. He's started moving some of it already; the embattled $14 billion hedge fund firm plans to close its trading operation in London's posh financial center—called the "City"—by year end.
What's unclear is if SAC will also rent or sell its other offices. In addition to its two-building Stamford, Conn. headquarters, the firm works out of two sleek locations in midtown Manhattan and one in Hong Kong's high-end "Central" neighborhood.
SAC also has separate administrative locations for records in Boston, Singapore, Beijing and Tokyo, according to government filings.
In early November, SAC pleaded guilty to criminal insider trading charges and agreed to pay a $1.2 billion fine, pending approval by a judge.
Cohen, who has not been personally charged with any crime, also agreed to stop managing outside capital. That comes on top of a previous $616 million fine by the Securities and Exchange Commission for related charges. Those deals are separate from two trails of former SAC employees charged with insider trading, Michael Steinberg and Mathew Martoma.
SAC is attempting to sublet one floor of its space at 330 Madison Ave. in New York, according to people familiar with the situation and marketing materials.
The firm put the entire 33rd floor up for rent around Aug. 1 but has yet to find a tenant.
The 9,818-square-foot space has "good light and views" and an "elegant pantry," according to the materials. SAC is asking $85 a square foot per year to take over a lease that ends in July 2021. The firm is keeping two other floors in the same building, which also houses satellite offices for $190 billion Guggenheim Partners.
SAC paid between $70 and $83 a square foot when it signed the 10-year lease at 330 Madison in 2010 for more than 33,000 square feet over three floors, according to a real estate broker with access to deal data.
Today, the average asking price for an office in midtown Manhattan is $71.21 a square foot, according to real estate firm CBRE Group. The average for a boutique financial services building like 330 Madison is $106.54 a square foot. The peak for such so-called "Class A" space before the financial crisis was $128 and the nadir in 2009 was $64.
A spokesman for SAC declined to comment, but a person familiar with the situation said the move was unrelated to the family office transition and did not represent cuts to the business.
SAC added a second Manhattan office at 510 Madison Ave. in May 2011 and was already planning to consolidate the location of some staff, according to the person. A group of quantitative traders who previously occupied the floor now up for rent are now on a different floor in the same building.
That 510 Madison office—one of the premiere locations for hedge funds in New York City—could attract even higher rental prices were SAC to downsize.
SAC has about 70,000 square feet spread between the second, third, fourth, fifth and sixth floors. The firm took a 10-year lease for the space in 2011 and was one of the first tenants in the building, which features a pool, gym, floor-to-ceiling windows and 10-foot ceilings. SAC paid between $80 and $99 a square foot, according to people familiar with the situation.
Based on recent leases, SAC could get between $100 and $140 a square foot for a sublease, according to a broker with knowledge of the market. Other tenants in 510 Madison include hedge fund firms Senator Investment Group, Valinor Management, Junto Capital Partners and Jay Goldman & Co.
"SAC can salvage value from its existing office space as it is located in two premier buildings," said Jonathan Luttwak, co-head of global alternative investment services at real estate broker Cushman & Wakefield.
Luttwak said SAC would almost certainly get more than it paid.
"Not surprisingly, SAC also signed for their existing space at relatively low points in the market and is paying low rents for those buildings," he said.
SAC's headquarters on the Stamford waterfront would fetch far less.
The firm's main offices at 72 Cummings Point Road--which features the large trading floor that Cohen himself sits in the middle of--would get about $35 a square foot to rent, according to a person with knowledge of the local market. A second building nearby at 22 Gatehouse Road would likely get less, about $30 a square foot.
"Stamford in general is a sought-after location for financial firms and it's basically as acceptable as Greenwich for hedge funds," said Steve Greenbush, a Stamford-based broker with CBRE. "At the same time, we've seen a slowdown in demand since the financial crisis so the market isn't quite as hot as it once was."
SAC would have some high-powered help were it to downsize. Its primary broker in New York is Newmark Grubb Knight Frank vice chairman Neil Goldmacher, widely considered a dean of Manhattan hedge fund real estate.
In Connecticut, SAC has recently been represented by Brian Carcaterra of CBRE. Carcaterra worked at Newmark from 2003 to September 2012 and is close to Cohen's firm through a personal relationship with soon-to-depart Chief Operating Officer Sol Kumin.
Carcaterra and Kumin both played on the same lacrosse team as undergraduates at Johns Hopkins in the late 1990s.
The two men initially took different paths after college. Kumin stayed in finance and joined fast-growing SAC early in his career. He rose quickly and ultimately "helped create our global strategy and footprint," as Cohen put it in a November 21 note to SAC employees. Carcaterra, by contrast, played professional lacrosse from 2000 to 2003 and was a Major League Lacrosse All-Star and champion, according to his CBRE biography.
Goldmacher and Carcaterra didn't respond to requests for comment.
Potential prices for SAC's key offices abroad vary. The average rent for "Grade A" office space in London's City neighborhood range from $71 to $89 a square foot, according to a third-quarter report from Cushman & Wakefield. Average luxury rents in Hong Kong are around $103 a square foot, according to the same report.
—By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.