Philip Blumberg Blog

JBG Buys DC Metro Office Building for $43.5M

The JBG Companies have purchased a 228,020-square-foot Class A office building located in Rockville, Maryland from Morgan Stanley for nearly $12 million less than what the financial services firm paid for the property three years ago. JBG is paying $43.5 million for the property known as One Choke Cherry, a 228,020 square foot property off of I-270 built in 2004. JBG had originally developed the building then sold it to Morgan Stanley in 2005 for $55 million according to a CPN article.

The property is fully leased to the General Service Administration - Substance Abuse and Mental Health Services Association through 2014 according to CoStar information. SNSPF Interim Finance B.V., a Netherlands-based lender, provided financing. Paul Collins, Bill Collins, Drew Flood, James Cassidy and Jud Ryan of Cassidy & Pinkard Colliers represented Morgan Stanley.

For more news and information, visit Blumberg Capital Partners.

HRPT Enters $250 Million Secured Credit Facility

HRPT Properties Trust has entered into a new $250 million secured credit facility with a group of commercial banks according to a CPN article. The facility is non-recourse to HRP and is secured by certain properties located throughout the United States.

The maturity date of this new facility is April 24, 2012, and the borrower has the option to extend the facility, subject to certain conditions, for one year to April 24, 2013. Interest under the facility is generally set at LIBOR, subject to a floor, plus a spread which varies depending on the amount of debt leverage at the borrower subsidiary. "As of December 31, 2008, there is 99 percent occupancy in the 29 government-tenanted buildings that secured this facility," Timothy Bonang, HRPT director of investor relations, told CPN. The banks participating in the facility include joint lead arrangers Bank of America Securities L.L.C. and Wells Fargo Bank N.A.; Royal Bank of Canada; US Bank National Association; Citicorp North America Inc.; Morgan Stanley Bank N.A.; Regions Bank; and UBS Loan Finance L.L.C. HRPT plans to use the net proceeds from the new facility to pay down outstanding debt under its revolving credit facility.

For more news and information, visit Blumberg Capital Partners.

NYC Office Landlords Build Smaller Spaces

The New York Times published an article today titled "New York Office Landlords Go Small", commenting on the choice some office spaces are making to turn large vacant blocks of real estate into smaller, pre-built offices as the commercial real estate market continues to see vacancies on the rise. "In the past, landlords would have been less likely to break up whole floors, because it is easier to do one single transaction," said Peter Turchin, an executive vice president at CB Richard Ellis. "But that’s not where the market is now."

According to a report from Cushman & Wakefield, the first quarter of 2009 in Manhattan saw nearly 85% of the leases inked for spaces under 10,000 square feet, with another 11% in the 10,000 to 25,000 square foot range. Brokers say such a strong tilt toward small offices is unusual in New York, where the financial industry, in particular, has traditionally rented large blocks of space.

For more news and information, visit Blumberg Capital Partners.

Silveron Office Center for Sale

The Silveron Office Center, a 64,267 square foot multi-tenant office building in Flower Mound, Texas, has been put on the market for sale according to a crefeed.com report. The Dallas-suburb office property at 601. Silveron Blvd. was built in 2006 and is currently 95% leased, with recent rates of $22.50/square foot. The two-story structure boasts stone accented entries, 4/1,000 parking and a two-story lobby with a monumental staircase.

"Silveron Office Center currently has a favorable operating income ratio with a 9 percent cap rate and 11.5 percent cash flow on actual occupancy," said Ron Hebert, associate vice president investments and director of Marcus & Millichap Real Estate Investment Services, representing the seller.

For more news and information, visit Blumberg Capital Partners.

LightsOutHouston - CRE Buildings Go Smart

Just in time for Earth Week 2009, Houston, TX is marking its second year of the LightsOutHouston initiative, a commitment to become the "Energy Conservation Capital" by turning off the lights. Top property owners and their tenants, in conjunction with the Greater Houston Partnership, the City of Houston, Central Houston, Inc. and CenterPoint Energy, have joined the program to establish a sustained reduction in the use of non-essential electricity in commercial buildings.

In addition to signing sign a pledge of their commitment to energy conservation, participating buildings will "go dark" for the weekend, beginning at 10pm on Friday evening. Security lighting, any obstruction lighting, emergency lighting and lights in occupied offices will remain lit. The 2008 LightsOutHouston avoided 43,000 tons of CO2, which is equal to taking about 7,500 passenger vehicles off the road. The electricity saved is enough to power 4,600 average Texas homes for a year. If participating owners and tenants put this practice into action year-round it could mean a potential savings of $8 million in electric bills, according to a Houston Business Journal article.

For more news and information, visit Blumberg Capital Partners.

Dividend Capital Acquires DC Office Building for $63.6M

Dividend Capital Total Realty Trust, Inc., a Denver-based diversified REIT, has acquired a Class-A office building in Washington, DC, according to a crefeed.com article. The property, located at 1300 Connecticut Ave. NW, is a 126,000 square foot building and is currently leased to 12 tenants, including IAM National Pension Fund, Visa USA and PFC Energy. Holliday Fenoglio Fowler arranged $36.5 million in financing for the sale.

"The DC office market is one of the nation's premier real estate markets," said Guy Arnold, president of Dividend Capital. "Benefiting from a prestigious Connecticut Avenue address in the Dupont Circle submarket, we believe the building is a great addition to our portfolio."

For more news and information, visit Blumberg Capital Partners.

General Growth Properties Files for Bankruptcy Protection

General Growth Properties, the second largest mall operator in the world's largest economy, has filed for Chapter 11 Bankruptcy Protection, collapsing under nearly $27.3 billion in debt and stirring new concerns about the coming tide for the commercial real estate market. "General Growth has been crippled now for a year and a half," said Gregory Leisch, founder of Delta Associates, in a Washington Post article. "They haven't been able to sell anything. They haven't been able to buy anything. They haven't been able to redevelop anything."

"Here in the U.S., the majority of the issues are more at the property level than the company level right now," said Robert M. White Jr., the president of Real Capital Analytics. Real Capital's recent market reports show that the global credit crisis, weakening retail demand and rising unemployment have taken a toll on commercial property around the world, and at least $153 billion worth of property is already in distress. General Growth president and COO Tom Nolan stressed that the firm's assets are key to generating NOI and enabling the REIT to emerge from Chapter 11 bankruptcy protection. "It's our obligation to consider all strategic opportunities, but we look at [our portfolio] as integral for establishing the entire platform for the company," Nolan said.

For more news and information, visit Blumberg Capital Partners.

Midway Airport Deal Falls Through in Chicago

The City of Chicago has announced that its lease with Midway Investments and Development Company — a joint venture between Citigroup Inc., John Hancock Life Insurance Co. and Vancouver Airport Services — to privatize Midway International Airport will not move forward. As the president & CEO of Vancouver Airport Service was quoted as saying in a statement in CPN, "the company was unable to finalize the transaction due to current global market conditions that have materially deteriorated since the bid award."

While the city did collect $126 million that the joint venture provided as part of the agreement, Midway Investments could not secure the financial backing to pay the upfront rent of $2.52 billion to the city. To make sure the city's budget won't take a hit because of the failure to close the deal, the city plans to allocate $40 million over two years to this and next year's budgets, according to City Chief Financial Officer Gene Saffold. Saffold also indicated that this failed deal does not mean that the airport will never be privatized. "We still retain the right to competitively offer the Midway transaction again, down the road, when financial market conditions improve."

For more news and information, visit Blumberg Capital Partners.

CRE Sales Plunge in Q1

Real Capital Analytics has released a report showing a 70% decrease in commercial real estate sales around the world in the first quarter of 2009, with just over 1,000 buildings sold valued at $47 billion. Another worrisome sign, reports the San Jose Business Journal, is the rise in the number of distressed properties. Real Capital reported that another $55 billion worth of assets fell into default on their mortgages during the first quarter, bringing the total value of assets known to be in distress to "a stunning $153 billion," a jump of 56% over the fourth quarter of 2008.

At the end of last year, the vacancy rate for commercial office buildings was 14.5%; that number is expected to climb to 16.7% this year as more and more companies and individuals file for bankruptcy. According to Mark Scott, Senior Vice President of NorthMarq Capital LLC, 2009 could be a banner year for commercial defaults. "In the office market, you’re starting to see signs of mammoth job losses, and as people aren’t buying as many goods, they’re not shipping as many goods, so [now] we have stress in the industrial market."

For more news and information, visit Blumberg Capital Partners.

New Beige Book: CRE Conditions Continue to Deteriorate

The latest Federal Reserve Beige Book has been released, observing the continued strain in the commercial real estate market. The report said that the economy continued to worsen across the country in March and early April, even as a few small indicators hinted that the pace of the decline was lessening in some regions. An excerpt:

Nonresidential real estate conditions continued to deteriorate over the past six weeks. Demand for office, industrial and retail space continued to fall, and there were reports of increases in sublease space. Rental concessions were rising. Property values moved lower as reality “set in.” Construction activity continues to slow, and several Districts noted increased postponement of both private and public projects. Nonresidential construction is expected to decline through year-end, although there were some hopeful reports that the stimulus package may lead to some improvement.

Commercial real estate investment activity weakened further. Contacts said a decline in credit availability and markdowns on commercial property were keeping buyers and sellers on the sidelines.

For more news and information, visit Blumberg Capital Partners.