Global Viewpoints

Dealing with Development Projects in Trouble?

Edited: Jennifer Brenner Andrade

ARGUS Developer™ Provides the Tools You Need for Project Revaluation, Risk Analysis, and Deal Structuring

Uncertainty and tightness in the leasing and credit markets demands many development projects be re-evaluated. Developers, lenders and equity holders need to assess the risks and costs of projects under development and review each projects financing structure in this volatile market.

ARGUS Developer by ARGUS Software can help the participants with project valuation or revaluation, risk analysis and deal structuring:

Project Revaluation ARGUS Developer has the tools to model real estate projects at any stage of development – prior to, during, and after construction with:

• Project Phasing: ARGUS Developer has unique timescale functionality – you can instantly see the impact of changes to timing assumptions on profits and IRR’s. Changes in project timing are immediately reflected in interest costs, preferred returns, IRR Lookbacks and other key performance indicators that determine investment values.
  
  
• Scenario Modelling: Developer’s flexible and powerful phase grouping and copying functions let you quickly repackage the physical project and create unlimited scenarios to try out different assumptions – all within the same file.
  
  
• Determine Current Project Value: Based on required IRR, profit, ROE and other measures, ARGUS Developer’s Residual Target mode can tell you how much to pay for a project at any stage of development .

Risk Analysis

Explore potential outcomes in overall project profits and returns at the individual investor level using:

• Sensitivity Analysis: ARGUS Developer’s four-way sensitivity lets you vary up to four key assumptions simultaneously – e.g. Construction Cost, Rental Rate, Cap Rate and pre-construction holding period – for a total of 625 possible outcomes in an easy-to-understand grid. You can force the model to adopt any combination of assumptions you choose, instantly editing hundreds of inputs precisely and automatically.
  
  
• Direct Changes to Assumptions: ARGUS Developer gives you direct control of the underlying assumptions, with results that are instantly displayed in the Results Panel which displays your choice of key performance indicators.

Deal Structuring Today’s extraordinary market conditions require the continuous re-evaluation of equity and debt positions in real estate developments. Whether you are selling, buying or re-capitalizing a development project, ARGUS Developer provides an extensive set of easy-to-use and understand functions for:

• New Deal Structuring: Any number of equity and debt entities can participate in a project, with a variety of ways to contribute, get repaid, and share in profits.
  
  
• Deal Restructuring: Can involve retention of existing equity and debt sources and entry of new ones, with changed capitalization and profit split parameters.

No matter how you approach recapitalization, ARGUS Developer provides detailed monthly cash flow projections of contributions, repayments and profits on a source by source basis.

Join us for a Webinar on Tuesday June 16th at 1:00pm (CDT) to learn more about how ARGUS Developer can help your development projects.

Click here to register >>

NAI Bluestone Real Estate Capital Secures $36.5M in Senior Financing for 202-Unit Multifamily Complex in Philadelphia, PA

Edited: Jennifer Brenner Andrade
Source: NAI Bluestone

NAI Bluestone Real Estate Capital, a Philadelphia-based real estate investment banking and advisory firm, has secured $36.5M in senior debt for the Glen at Shawmont Station, a Class A, 202-unit multifamily complex located in Philadelphia, PA. The loan was structured and secured on behalf of Hunters Pointe Associates, an affiliate of the Andorra Group, a Philadelphia-based real estate development and construction firm. Freddie Mac provided $30M in senior permanent financing and an additional $6.5M was secured from local banks and collateralized by additional real estate assets.

Located in Philadelphia, PA, The Glen at Shawmont Station is a garden style apartment community consisting of 10, three story buildings situated over 18 acres. The property is nearly 100% occupied and offers excellent access to downtown Philadelphia and the surrounding suburbs. Completed in 2006, the property’s amenities include a combination leasing office/clubhouse, which includes a full size kitchen, leasing office, sample apartment unit, exercise facility and a “cyber café” with wireless internet access.

“This deal was particularly challenging because we had an extremely short window to secure four loans and negotiate favorable terms, which can be nearly impossible in today’s market,” said Timothy Bradley, Senior Associate, NAI Bluestone Real Estate Capital. “The strength of the property’s historic operating history, coupled with our relationships with agency and local lenders, allowed us to extend the loan terms and secure favorable rates from the lenders on behalf of Andorra.”

“Our ability to secure a loan of this size, from disparate financing sources, in an incredibly short time frame is proof that financing solutions are still available today, but they require tenacity, industry know-how and strong relationships with lenders,” said Matthew McManus, Chairman of NAI Bluestone. “The successful financing of this project is representative of the type of unique and often complex transactions in which NAI Bluestone specializes.”

The 10 year, senior permanent loan is fixed at 6.2% and amortized over 30 years.

New Firms Continue to Launch: Caldera Asset Management to Serve Multifamily Industry

Edited: Jennifer Brenner Andrade
Source: Caldera Asset Management

The combination of lower rental rates and rising vacancy rates is causing decreases in value, resulting in significant losses for holders of multifamily debt and equity. As the larger wave of overvalued assets and loan maturities sweep the market, the situation will continue to worsen long after the recession ends and is predicted by some to persist until 2015. In response to the growing need for experts who specialize in the complex multifamily market, industry veterans, Mike Kelly and Bill Leseman have launched Caldera Asset Management.

"The financial status of the multi-family world is very similar to the residential world, just a few years delayed," said Mike Kelly, president and co-founder of Caldera Asset Management. "Pushing the problems down the road may work for some multifamily assets; however, that comes with risk as the great flood of overvalued assets is ahead of us. In order for property lenders, owners and equity investors to make good decisions, they need to fully understand the issues with the underlying operations, sponsors, markets and financing options in a fast-shifting environment."

Based in Denver and Atlanta, Caldera Asset Management is a national consulting firm exclusively focused on multifamily assets. The team's combined experience in asset management spans decades, encompassing over five billion dollars in transactions. In addition, Bill Leseman, chairman and co-founder, is a member of the Institute of Real Estate Management where he holds the Certified Property Management (CPM) designation.

"Multifamily is a specialized asset class which requires extensive experience to successfully manage turnaround situations. Transactions are increasing in size, complexity and cost. Therefore, engaging the right, objective talent, capable of immediate execution, is essential to solving the problems and mitigating losses," said Kelly.

As a national firm, Caldera Asset Management plans to provide a unique local market expertise focused on swiftly addressing clients' problems using tailored solutions. "Significant differences exist between geographic areas and asset classes," said Bill Leseman. "We have strong relationships with vendors, service providers and brokers in local markets enabling customized, efficient, on-the-ground and complete solutions - ultimately saving time and money for our clients."

Caldera works with RAM Partners, LLC, an independent employee-owned apartment property management firm, to provide experienced on-the-ground management virtually anywhere in the country. RAM Partners currently manages approximately 29,000 units and is an Accredited Management Organization(R) (AMO), an honor awarded to companies which exhibit experience, financial stability, integrity and ethics. This designation is currently awarded to only six percent of all management companies nationwide.

AMB Releases Research Report on Global Trade and Industrial Real Estate Demand

Edited: Jennifer Brenner Andrade
Source: AMB Property Corp.

AMB Property Corporation, a leading global owner, operator and developer of industrial real estate, released a research report titled, "The Long-Term Prospects for Global Trade and Industrial Real Estate Demand: An analysis of a trade-based investment strategy in the midst of global economic crisis."

The report examines the impact of global trade on industrial real estate demand; the long-term relationship between trade and gross domestic product (GDP); insight into the evolution of trade; as well as the major trends that are expected to considerably influence the supply chain and warehousing needs of the future.

"Our analysis indicates that, while the global economy is in the midst of a recession, the fundamental drivers of industrial real estate demand remain intact. The recent declines in global trade volumes and the net absorption of industrial real estate--factors that are more aligned than ever--represent a temporary pause in a strong, longstanding secular trend. Today's interconnected, highly-efficient supply chains are not reversing in any meaningful way, and, on the margin, there are early signs that trade volumes may be stabilizing," said David C. Twist, AMB's vice president, Research.

Summary of Findings

• Variations in trade account for 80 percent of the historical variation in industrial real estate demand.
  
  
• Growth in trade volume is highly correlated with GDP (U.S. and global) and trade growth as a multiple of the GDP growth rate has more than doubled over the last 50 years. In the past decade, trade's multiplier on GDP expanded to 3.5, and as a result, nominal changes in GDP growth result in significant changes in trade growth. Global expectations for GDP in 2009 imply trade should fall by approximately 10 percent, a view consistent with that of industry experts.
  
  
• There are four significant factors that have contributed to the recent declines in trade: inflation fluctuations; financing availability; supply chain responsiveness; and miscounting of final products.
  
  
• Despite the current economic and financial downturn, structural support for the trade-to-GDP and trade-to-industrial-real-estate demand relationship remains intact. The global shift of labor, productivity and capital over many decades has created complex but efficient supply chains. A fundamental shift back to domestic production is not feasible as it would take decades and require much added cost to implement.
  
  
• Consensus estimates for 2010 GDP growth in the U.S. and globally are currently at about 2.0 percent. This level of growth is consistent with about 500 million square feet of industrial real estate demand globally, and the beginning of a healthy recovery.

First Industrial Realty Trust Closes Three Secured Financings Totaling $154 Million

Edited: Jennifer Brenner Andrade
Source: First Industrial Realty Trust

First Industrial Realty Trust, Inc., a leading provider of industrial real estate supply chain solutions, has closed three secured financing transactions totaling $154 million.

"We are pleased to complete these secured financing transactions, backed by properties in our large, diversified industrial portfolio," said Bruce W. Duncan, president and chief executive officer of First Industrial. "With these proceeds, we will retire our June 2009 maturity, and seek additional opportunities to further reduce leverage."

The largest financing was a $77.0 million, 10-year loan with John Hancock Life Insurance Company, secured by 27 properties totaling approximately 2.6 million square feet. The interest rate is fixed at 7.87% over a 30-year amortization schedule.

First Industrial also closed on a $62.5 million, seven-year financing with Massachusetts Mutual Life Insurance Company, arranged through its Babson Capital Management LLC investment subsidiary, secured by 23 properties totaling approximately 3.1 million square feet. That loan has a fixed rate of 7.75%, and a 25-year amortization schedule including two years of interest only.

In addition, the Company secured a $14.7 million, seven-year loan from American National Insurance Company on a single asset totaling 600,000 square feet. That loan is at a fixed rate of 7.5% over a 25-year amortization schedule.

Mr. Duncan added, "Upon the retirement of our June 2009 notes, we have less than $25 million of balance sheet debt maturing prior to March 2011."

First Industrial will use the proceeds from the financings principally for the reduction of debt, as well as for other general corporate purposes. The loan-to-value ratio for each of these financings was less than 65%.