Philip Blumberg Blog

Dividend Capital Acquires $1.3B Portfolio

Dividend Capital Total Realty Trust Inc. has completed the acquisition of a $1.3 billion portfolio from iStar Financial. The portfolio is comprised of 32 office and industrial properties in 16 markets within the U.S., totaling roughly 11.3 million in rentable square feet. The properties are approximately 99% occupied with many properties leased to single tenant corporate users, including Amazon.com, Sybase, FedEx, Unisys, Goodyear, Nokia Siemens, Avis Budget, DirecTV and Google. iStar will use the proceeds from this transaction to repay a $925 million loan secured by the properties being sold, as well as for general corporate purposes.

We are extremely pleased to acquire this high-quality portfolio of office and industrial buildings," said Guy Arnold, president of Dividend Capital. "We feel the acquisition is a valuable addition to our portfolio, further diversifying our commercial real estate holdings by property type, tenant base and geography." According to the Denver Business Journal, Dividend Capital owns 111 properties totaling about 24.3 million square feet in 35 markets as of June 25.

For more news and information visit Blumberg Capital Partners.

Forbes Takes a Look at the Current State of REITs

A Forbes article released this week takes a look at the REIT sector whose earnings bested preditions for the first quarter but is an industry still battling falling rents in the commercial sector. The article cites findings from Keefe, Bruyette & Woods analysts that found roughly half of the REITs the company tracks exceeded estimates for the industry's version of net earnings, leaving the remainder to fall short of predictions in roughly equal portions. An excerpt from the article:

The larger problems of the real estate market continue to cast a shadow over the REIT sector, though. Same-store net operating income, a favorite way of measuring a property's earning power, declined across most commercial real estate industries as rents continued to fall and vacancies stayed high, notes KBW. With Wall Street analysts currently predicting that REITs will grow their bottom lines by 7% from this year to next, landlords will have to pull off something of a magic trick to coax more income out of their real estate. Cost-cutting, delaying investment, renegotiating debt and other options are all on the table, but investor expectations are high.

For more news and information visit Blumberg Capital Partners.

Dividend Capital Purchasing $1.4B Portfolio

Dividend Capital Total Realty Trust Inc. has entered into purchase and sale agreements to acquire a $1.4 billion portfolio from iStar Financial. The portfolio, according to a CoStar report, consists of 33 offices and industrial properties in 18 geographic markets in the US with roughly 11.8 million net rentable square feet. The unidentified properties are primarily leased to large corporate tenants subject to triple net leases.

The transaction is expected to close in the second quarter of this year. iStar has agreed to provide the REIT with up to $125 million in mezzanine financing after Dividend, which has already made an initial deposit of $25 million, has obtained a commitment for senior financing.

For more news and information visit Blumberg Capital Partners.

RE/MAX Sells Denver Headquarters for $75M

RE/MAX Plaza in Denver traded hands this month in one of the area's largest deals of the year as HRPT Properties Trust took ownership of RE/MAX's headquarters for $75 million. The purchase price was roughly $312 per square foot, slightly above the projected $300 per square foot expected for the property; the building previously traded hands in 2009 for $134.3 million when JP Morgan Chase & Company sold it to the REIT. Local real estate experts expect that RE/MAX will likely stay in its headquarters building as a tenant according to the Denver Business Journal.

The property at 5075 S. Syracuse St. in Denver was completed in 2007 and won "Office Project of the Year" that year from the Denver Metro Commercial Association of Realtors. The 233,998 square foot structure also boasts including a full conference center/auditorium, employee dining hall and fully equipped fitness center.

For more news and information visit Blumberg Capital Partners.

U.S. REITs Make Significant Gains

According to a report from the National Association of Real Estate Investment Trusts, REITs have gained over 5 percent through February.  "With a long-term recovery in real estate valuations ahead, there are good prospects for total returns for REITs," says Michael Hudgins, VP and global REIT strategist at JP Morgan Asset Management.

Ron Kuykendall of NAREIT suggests that the answer may lie in the fact that "investors aren't buying today's fundamentals as much as what they think tomorrow's will be."  He further belives that publicly raised funds are now being used to acquire properties from private side owners who were not able to tap into public equity markets are a contributing factor to this heightened rebound.

Dr. Sam Chandan of Real Capital Analytics concurs:  "The best-positioned REITs are facing the same general set of challenges in managing lower occupancy and rents as the rest of the marketplace.  But these REITs have also been very successful in raising capital in the public markets over the last few quarters."

For more news and information visit Blumberg Capital Partners.

Apollo Reports on CMBS and Mezzanine Loan Activities

Apollo Commercial Real Estate Finance, Inc. (ARI) reported on its financial activities through the quarter ending 31 December, 2009.  According to a public press release, ARI originated and acquired mezzanine and secured loans totaling $204.7 million.  An additional $144.3 million were invested by 31 January, 2010.  Mezzanine loans have been originated for such companies as Inland Western Retail Real Estate Trust.

ARI has invested about $267 million in commercial mortgage-backed securities, or CMBS, since its IPO.  "The nature and timing of ARI's initial investment activity is consistent with the strategy and plan highlighted during our initial public offering. We believe the first mortgage and mezzanine loans provide attractive interest rates well supported by high quality assets with strong sponsorship and the CMBS will generate strong returns on equity,"  Stuart Rothstein (Chief Financial Officer, ARI) has said.  ARI is managed by ACREFI Management, LLC, who are linked to Apollo Global Management, LLC.

For more news and information visit Blumberg Capital Partners.

REITs Encounter Unexpected Problem

Stephen Richter, CFO of Weingarten Realty Investors, is quoted by Wall Street Journal as saying:  "Today I'm sitting with $125 million in cash that I can't find investment for."

Weingarten and other public real estate investment trusts have raised some $24 billion in funds last year for an anticipated glut of distressed and undervalued commercial properties.  However, the REITs had only $4.6 billion worth of transactions according to a 2009 trending report from Real Capital Analytics.  Bob Steers, co-chief executive of REIT investor Cohen & Steers Inc., suggests the reason for this is:  "The volume of the properties that are truly distressed and will be sold in a distressed fashion will be significantly less than had initially been thought."

Lenders appear to be more interested in extending loans for existing property owners than forclosing, and so releiving the pressures involved with distressed property management.

For more news and information visit Blumberg Capital Partners.

City of New York Extends Broad Street Lease

The City of New York has extended its 313,022 square-foot lease at 60 Broad Street in New York according to a CoStar report. The city has occupied twelve floors in the building since 2000 and will continue its tenancy through April, 2020, revamping a five-year renewal signed nearly two years ago. . The City of New York lease represents the second largest tenant in the 1,027,000 square foot property.

The building owner, Piedmont Office Realty Trust, was represented by Arthur Stern, Anthony Stapleton, Eric Sarner and Ross Jacobs of Cogswell Realty, LLC. "The City of New York is a valued tenant in the building," said Arthur Stern, CEO of Cogswell. "Without the efforts of the City of New York, Jeff Kondrat and Scott Bernstein, in particular, this transaction would not have been possible," added Mr. Stern.

For more news and information visit Blumberg Capital Partners.

RREEF US Real Estate Investment Outlook Mark Up

RREEF Research, comprised of experienced professionals from a broad range of property and finance related backgrounds, has published an annual outlook for real estate markets for over 15 years, and this week released its marked-up version of the report. The mark-up, published at the end of each year, annotates where RREEF's forecasts were on or off target.

The "Strategic Outlook Mark-Up" for 2009 reflects on the real estate markets that struggled this past year during the economic collapse. As an example, the original report suggested that the NCREIF property index (NPI) would likely return between negative 9 - 11% in 2009, while the new mark-up is less optimistic forecasting negative 17 - 19%. The complete document can be read here (pdf).

For more news and information visit Blumberg Capital Partners.

Private Equity Fundraising Hit 2004 Levels

Preqin released its findings on 2009 private equity funding this week and reported that private equity fundraising had its worst year since 2004 with only $246 billion raised by 482 funds worldwide. The number is down 61% from the on the $636 billion raised in 2008, and 62% down on the record $646 billion raised in 2007.

Tim Friedman, Head of Communications at Preqin, noted that "we are seeing investors focusing more on understanding the state of their existing portfolios and spending considerably more time when considering new vehicles. Negotiating terms and conditions has become more of a key concern, and we are seeing a trend away from the bigger mega-buyout funds towards more of a focus on smaller mid-market and regionally focused vehicles."

Key details from the research include:

• In Q4 2009, 13 buyout funds closed with an aggregate $14 billion, 24 venture funds closed with $4 billion, and 17 real estate funds closed with $7 billion.
• Funds focusing primarily on North America raised the most in commitments over 2009, with 228 funds raising an aggregate $145 billion. 136 funds focusing primarily on Europe raised $74 billion, while 118 Asia and Rest of World funds raised $27 billion.
• The largest fund to close in Q4 2009 was Clayton Dubilier & Rice VIII, a buyout fund targeting companies in North America and Europe. It closed at the very end of 2009 with total commitments of $5 billion.
• The average length of time taken for a fund to reach a final close has increased dramatically over the last two years, and now stands at more than 18 months for funds closed in 2009, up from one year for funds closed in 2007.
• Over the course of 2009, 60% of private equity investors surveyed made at least one new commitment to a private equity fund, while 40% of investors did not make any new commitments.
• Just over half of investors plan to make their next commitment to a private equity fund in the first half of 2010, and 16% plan to wait until the second half of the year.

For more news and information visit Blumberg Capital Partners.