Commercial Property Executive published an Economy Watch article looking at REIT IPOs and opportunities in commercial real estate finance, observing a market cool-down in the sector as companies reduce their IPOs and the Federal Reserve slows its purchases of mortgage securities. Apollo Commercial Real Estate Finance Inc. and Colony Financial Inc. both cut their IPOs in half this week according to SEC filings with Apollo cutting their shares from 20 million to 10 million, and Colony scaling back to 12.5 million shares from 25 million.
An excerpt from the article:
The theory behind the recent REIT IPOs is that banks will soon want to unload some of their bum real estate assets, either mortgages or properties that they've foreclosed on. But that hasn't been happening quite as fast as some investors had hoped, as both borrowers and lenders continue to kick the can down the road. Investors interested in commercial mortgages, as well as the underlying properties themselves, are in something of a holding pattern.
"Pricing isn't mark-to-market yet," commercial real estate veteran Steve Grant told CPE, discussing his specialty, office buildings. "We're getting closer, but aren't there yet for a number of reasons. Asset owners are going to make a go of it until they can't any longer, and lenders aren't showing a willingness to mark valuations down if the borrower is paying on its debt."
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Credit Suisse Asset Management purchased the Independence Wharf building in the financial district of Boston from GE Capital Real Estate for $106.25 million according to a CoStar report. The 14-story, 330,000 square foot building on the waterfront drew 22 bids before selling to the investment bank, its second deal in less than a week after purchasing an 11-story DC building for $90.5 million. The building is currently 90% leased by several large firms, including the insurance firm William Gallagher Associates and Babson Capital Management, a subsidiary of MassMutual Financial Group.
GE Real Estate, a unit of General Electric Co., purchased the building for $82 million in 2002 according to the Wall Street Journal. The property was renovated in 2001 and 2004, creating 28,000-square-foot floor plates and 9-foot ceilings. The wharf outside the building is known as the site of the Boston Tea Party in 1773.
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U.S. Bancorp, the Minneapolis-based bank, is expanding its North Carolina presence, taking another 10,000 square feet in Hearst Tower according to the Charlotte Business Journal. Bancorp's new, high-grade fixed-income group led by Jim Kelligrew, a former Wachovia Corp. banker, will be building a trading floor in the new space on the 26th floor, adding to the roughly 100 corporate and institutional trust employees currently working on the 26th and 27th floors of the building.
The Charlotte Observer reported that U.S. Bancorp plans to add up to 70 jobs in Charlotte by the end of 2010 as it starts a corporate banking and bond-trading operation. Charlotte is also getting a boost from hiring plans announced by GMAC Financial Services and Morgan Stanley & Co.
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The Internal Revenue Service introduced a new Revenue Procedure (2009-45) earlier this month that would make it easier for real estate mortgage investment conduits (REMIC) to modify securitized loans that are not yet in default but are likely to do so prior to maturity. The modification allows REMIC's to alter their commercial loans without jeapoardizing their tax status or exposing them to prohibited transaction taxes. In the procedure, the IRS has identified the current problem as follows:
In particular, borrowers under many of the commercial mortgage loans that will mature in the next few years are concerned that they will encounter great difficulty in obtaining refinancing for these loans. Because they had always anticipated using the proceeds from refinancing to satisfy the principal balance at maturity, the borrowers are often at risk of defaulting when their loans mature. This may be true even for loans in which the underlying commercial real estate is providing more than enough cash flow to satisfy debt service before maturity.
The Real Estate Roundtable expressed its hope that the new rules will help ease some of the liquidity problems in commercial real estate according to a CPE article. "Amidst a massive wave of maturing commercial real estate debt—and still virtually no credit available for refinancing—borrowers need to be able to talk with their loan servicers about restructurings in a timely manner, before the point of default," Jeffrey DeBoer, Roundtable president & CEO, said in a statement. "By easing the tax penalties on changes to securitized ‘conduit debt’—i.e., loans held within a REMIC—the IRS has taken a very positive step."
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Corus Bank, N.A., Chicago, IL was closed in September by the Office of the Comptroller or the Currency, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. As of June 30, 2009, Corus Bank had total assets of $7 billion and total deposits of approximately $7 billion. By this Friday, about 10 investors are expected to submit bids to the FDIC for $5 billion in condominium loans and other property held by the failed Corus Bank according to the Wall Street Journal.
The auction, with loans backed by more than 100 real-estate developments, will be the largest bulk sale of commercial property since the financial crisis began. "We are offering specialized investors an opportunity to purchase an equity stake" in up to $5 billion of Corus's loans, an FDIC spokesman said. "The more that the FDIC can obtain for the overall portfolio, the more we can recoup on behalf of the creditors and our deposit insurance fund." The Corus auction "is going to create a new mark," says Norman Radow, chief executive of Radco Cos., an Atlanta developer specializing in distressed condo projects across the U.S.
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Forest City Enterprises' New York-bases subsidiary, Forest City Ratner Companies, Inc. (FCRC) and Nets Sports and Entertainment have signed a letter of intent with Russia's Onexim Group for the development of Atlantic Yards according to a CPE article. The partnership will ensure the successful completion of a world-class entertainment venue in Brooklyn, the relocation of the NBA Nets basketball team and the economic and housing benefits of the 22-acre Atlantic Yards Project.
In accordance with the agreement, entities to be formed by Onexim Group will invest $200 million and make certain contingent funding commitments to acquire 45% of the arena project and 80% of the NBA team, and the right to purchase up to 20% of the Atlantic Yards Development Company, which will develop the non-arena real estate. Mikhail Prokhorov, president of Onexim Group, said, "I have a long-standing passion for basketball and pursuing interests that forward the development of the sport in Russia. I look forward to becoming a member of the NBA and working with Bruce and his talented team to bring the Nets to Brooklyn."
The transaction is expected to close by the first quarter of next year after securing approval from the NBA's Board of Governors. The Raine Group and Goldman, Sachs & Co. advised FCRC and NSE. Simpson Thacher & Bartlett LLP acted as legal counsel to FCRC and NSE. Hogan & Hartson advised Onexim Group.
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Black and Veatch Corp., an engineering and construction firm, closed on a deal with Sam Zell's private investment firm to buy its worldwide headquarters building in Overland Park, Kansas for $60 million according to a Wall Street Journal article. Mr. Zell originally offered to sell the property to Black and Veatch, who has occupied the property since 1976 with a current lease set to expire in 2012, for $100 million two years ago, but market conditions and competing offers for Black and Veatch business drove the price down. "We made it clear that we were willing to move, and the purchase price came down a long way," said Timothy Monahan, a Philadelphia-based Studley Inc. broker who helped represent Black & Veatch.
Mr. Zell agreed to sell the building through his private holding company, Equity Group Investments, for roughly $100 per square foot, relieving the prospect of a costly property renovation and re-lease had Black and Veatch vacated. The 600,000 square foot building is the largest office building in Kansas according to Black and Veatch and will soon share the neighborhood with Sprint as it enters into a sublease agreement on a property directly across the street. Greg Rose, senior vice president for real estate at Equity Group Investments, said the deal was fair to both parties. "I would not characterize it as being a big discount," he said. "An argument could be made that they paid a premium to remain in their current location."
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One Bell Valley Commons, the first building to rise in the 40-acre Bell Valley Commons subdivision, was delivered this month in Cherry Valley, Illinois. Ragnar Benson designed and built the three-story Class A office building which includes the office build-out for accounting firm McGladrey.
The construction of One Bell Valley Commons was completed for C-Bro Ltd. Development Group, a design/build project originally awarded in November 2007 with ground breaking in July 2008 and occupancy initially scheduled for June 2009. Features include a two-story entrance lobby and a second floor glass rail overview. Energy efficiency was carefully considered and achieved with wall and roof insulation values per the Illinois Energy Code, a white reflective roof membrane, low-E tinted glass, and high efficient roof-top heating and cooling units.
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Fish & Richardson, a leading global law firm, has signed a lease at One Marina Park Drive in Boston as the first tenant to occupy a new 500,000-square-foot building built by The Fallon Co. on Fan Pier. Fish & Richardson had previously signed a non-binding lease to move their headquarters to the property but the deal fell through when the developer, Gale International, failed to secure financing to redevelop the former Filene's building according to the Boston Business Journal.
"This is great news for Boston," said Mayor Thomas M. Menino. "This lease signing illustrates the private sector's confidence in Fan Pier and Boston." The 124,000-square-foot lease on the South Boston waterfront will serve a Fish's Boston headquarters, moving from its current location in the Financial District beginning in the 3rd quarter 2010. Fan Pier is being developed by the Fallon Co. and Cornerstone Real Estate Advisers LLC, with Massachusetts Mutual Life Insurance Co. as a financial partner. CB Richard Ellis/New England represented Fallon in the lease negotiations.
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Eola Capital, an Orlando, Florida-based real estate investment company, has acquired the general partnership interests of over 7.6 million square feet of commercial office space in a portfolio of properties valued at $1.1 billion from America's Capital Partners. The acquisition nearly doubles Eola's company in size and extends their presence to include Philadelphia and the DC metro area reports the Orlando Business Journal.
"In what are clearly challenging times for our industry, this transaction stands out as an example of just one of the opportunities that exists to create value for our partners, tenants and employees," said Jim Heistand, founder and Chairman of Eola Capital. Rudy Touzet, the co-founder of America's Capital Partners, will acquire an interest in Eola Capital and join the firm as Chief Executive Officer.
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