Global Viewpoints

Summit Energy Guides Thomas Properties to Sustainability Distinction

Edited: Jennifer Brenner
Source: Summit Energy Services

Summit Energy Services, a leading global sustainability and energy management firm, announced that client Thomas Properties Group attained the status of Climate Action Leader for successfully reporting its greenhouse gas (GHG) emissions to the California Climate Action Registry.

According to Wayne Hendrickson, director of property operations at Thomas Properties, "Our partner, Summit Energy, led our company through the convoluted process of reporting emissions for our more than 15 million square feet of property. In particular, they provided guidance for selecting a third-party verifier of our emissions – a crucial component of the project's overall success. Summit's sustainability expertise played a large role in Thomas achieving this notable accomplishment."

The California Climate Action Registry (CCAR), a program that promotes early actions to reduce GHG emissions, awards the title of Climate Action Leader to organizations that have successfully measured, verified, and reported their emissions to CCAR's public registry. Participating organizations can then use this emissions data as a baseline for future benchmarking goals. The growing usage of voluntary emissions reporting programs like CCAR reflects increasing pressure by investors, customers and governmental bodies to regulate GHG emissions.

"A growing number of companies regard sustainability-focused programs as innovative tools that bring both economic and environmental benefit," commented John Hoekstra, Summit Energy's Director of Sustainability. "Successful carbon initiatives, such as Thomas Properties' latest accomplishment, require comprehensive goals built upon accurate data and up-to-date knowledge of current regulatory and market conditions."

"The distinction of Climate Action Leader demonstrates Thomas Properties' corporate commitment to make positive and profitable contributions toward a sustainable future," commented Wayne Hendrickson. "Even greater, this milestone marks the company's willingness to be increasingly accountable for future GHG emission reduction efforts."

New Paper Suggests CRE Opportunities Could Be Bigger Than in the Early ‘90s

Edited: Jennifer Brenner
Source: AlixPartners LLP

It’s no secret that for quite awhile commercial real-estate transactions, including distressed assets, have been at a standstill. But that could change in 2010, according to a paper released by AlixPartners LLP, the global business advisory firm; in fact, the firm finds that opportunities in CRE could be bigger in the months ahead than even in the heady days of the early 1990s.

“Of course, commercial real-estate fundamentals are still far from good,” said Dennis Yeskey, a senior advisor at AlixPartners and head of the firm’s CRE practice, “but I’ve never seen so much money sitting on the sidelines ready to pounce. For investors and lenders who are able to get their houses in order, from streamlining operating costs to managing capacities, this could finally be a turnaround year. In fact, opportunities out there today could be even bigger for commercial real estate than the early ‘90s were.”

The AlixPartners paper, entitled “Commercial Real Estate: What’s Ahead?,” identifies three factors that might point to an end to the current “gridlock” in CRE. They are:

• Banks moving to rebuild their tier-one capital reserves. With the current cheap cost of debt, lenders this year certainly hope to rebuild their tier-one capital reserves, according to Yeskey. If they are successful, they will increase reserves against their “bad” CRE loans while creating the ability to write-off those loans. This, in turn, will make it easier to perform real debt restructurings and to sell bad loans or underlying foreclosed real-estate assets to investors.
  
• Returning debt availability led by smaller loans. Even though over the next 18 months more than $1.5 trillion of debt maturities are coming due, the AlixPartners paper predicts that debt issuances will return, albeit slowly, to the real-estate capital markets. Principally, this debt will come from healthy banks (in the form of small loans), larger life insurers, selected new mezzanine investors, mortgage REITs, specialty finance companies and some offshore banks and sovereign wealth funds. Seller financing, along with more conservative underwriting, will also contributing to this trend, says Yeskey.
  
• Narrowing bid/ask spreads. Because of factors noted above, CRE sellers should be in a better position to lower their asking prices on distressed properties, according to the paper. Buyers, in turn, should be able to increase their offer prices, and thereby narrow the huge bid/ask gaps that exist today.

“We’ve all heard of the famous ‘wall of debt maturities’ out there about to hit so many industries in the next year or two,” continued Yeskey. “Well, that’s true in spades for commercial real estate. Whether real-estate investments are crushed by that wall, or whether they’re able to turn it into a foundation upon which to reach greater heights, depends on acting now, not later, to get in fighting shape.”

Prime Group Realty Trust Sales 180 North LaSalle Street for $72.3M and Defaults on Continental Towers Loans

Edited: Jennifer Brenner
Source: Prime Group Realty Trust

Prime Group Realty Trust recently announced that its Board of Trustees approved the sale of 180 North LaSalle Street, Chicago, Illinois (the “Property”), from the subsidiary of the Company (the “Seller”) that owns the Property to 180 N. LaSalle Realty LLC (the “Purchaser”), an entity indirectly controlled by Mr. Michael Silberberg of Nanuet, New York. The Purchaser and Seller entered into a purchase and sale agreement that became effective on February 25, 2010, which was the date it was approved by the Company’s Board.

The gross purchase price for the Property is $72.25 million, subject to customary pro-rations, credits and adjustments. The closing of the sale is conditioned upon the existing first mortgage lender consenting to the assumption of the Property’s existing debt by the Purchaser, unless the Purchaser notifies the Seller that the Purchaser has elected not to assume the existing debt and will instead obtain new financing for the acquisition. The Purchaser has deposited $4.0 million (the “Earnest Money”) in escrow to secure its obligation to purchase the Property, which is nonrefundable except upon (i) the failure of the first mortgage lender to consent to the assumption of the existing debt by the Purchaser or (ii) the occurrence of certain other customary events, such as a default by the Seller or the failure of the Seller to deliver certain satisfactory tenant estoppel certificates. The Company currently estimates that after closing adjustments and costs, the Seller will receive net proceeds of approximately $12.46 million. The Seller’s estimated GAAP gain on the sale is approximately $1.8 million.

It is currently contemplated that the closing will occur in May or June 2010. In the event that the Purchaser defaults on its obligation to purchase the Property, the Seller’s sole remedy is to receive the Earnest Money as liquidated damages.

In addition, the Company also announced today that two of its subsidiaries, each of which own separate portions of the Continental Towers Complex in Rolling Meadows Illinois, are in default under their respective first mortgage loans encumbering the Complex. Continental Towers, L.L.C. (“CT LLC”), a subsidiary of the Company, is the owner of Tower I, Tower III and the Commercium (the “CT Property”) at the Continental Towers Complex. The CT Property is currently encumbered by a first mortgage loan from CWCapital LLC (“Lender”) in the principal amount of $73.6 million (the “CT Loan”). A separate subsidiary of the Company, Continental Towers Associates III, LLC (“CTA III”), is the owner of Tower II (the “CTA III Property”) at the Continental Towers Complex. The CTA III Property is currently encumbered by a first mortgage loan from Lender in the principal amount of $41.4 million (the “CTA III Loan”).

On February 26, 2010, CTA III informed the Lender that it is in default under the CTA III Loan because the cash flow from the CTA III Property is not sufficient to pay the required escrows and debt service payments on the CTA III Loan. On the same day, CT LLC acknowledged to the Lender that the CT Loan is in default because it is cross-defaulted with the CTA III Loan.

CTA III and CT LLC are currently in discussions with the Lender regarding the foregoing.

Pursuant to the terms of each loan, upon the occurrence of a default the Lender may accelerate both loans and declare the obligations immediately due and payable. However, the CT Loan and the CTA III Loan are non-recourse to their respective borrowers, subject to customary non-recourse carve-outs, including but not limited to, certain environmental matters, fraud, waste, misapplication of funds, various special purpose entity covenants, the filing of a voluntary bankruptcy and other similar matters, which non-recourse carve-outs have been guaranteed by the Company’s operating partnership, Prime Group Realty, L.P. The Company is currently not aware of the occurrence of any event that would constitute a non-recourse carve-out on either loan.

American Beacon Announces Global Real Estate Fund

Edited: Jennifer Brenner
Source: American Beacon Advisors

American Beacon Advisors, an experienced provider of investment advisory services to institutional and retail markets, has created a new mutual fund, American Beacon Global Real Estate Fund, to its established family of mutual funds.

The American Beacon Global Real Estate Fund seeks to achieve a high total return through a combination of current income and capital appreciation. The Fund invests in securities including common equities, preferred equities and convertible debt issued by real estate and real estate-related companies located primarily in North America, Europe and the Asia-Pacific region. It may select from large-, mid- and small-cap companies including Real Estate Investment Trusts and Real Estate Operating Companies.

"We are incredibly pleased to offer for the first time a Global Real Estate Fund to our investors and expand American Beacon's diverse offering of investment choices," said Gene L. Needles Jr., president and CEO of American Beacon Advisors. "The Global Real Estate Fund presents a unique opportunity for investors who seek exposure to real estate companies across the market-cap and regional spectrum. This addition reflects American Beacon's ongoing commitment to providing a multitude of strategies, from international and domestic equity to fixed-income and money market funds."

The Global Real Estate Fund was formerly managed by CNL Fund Advisors Company. The transfer of the Fund's assets to the American Beacon Fund has the potential to reduce costs for shareholders, as a result of American Beacon's efficiencies of scale and contractual expense ratio limits, which will extend to February 28, 2011.

The Fund has appointed CB Richard Ellis Global Real Estate Securities, LLC (CBRE GRES) as the Fund's sub-advisor and portfolio manager with primary responsibility for the day-to-day management of the Fund. CBRE GRES is focused on managing portfolios of exchange-listed global real estate securities in North America, Europe and Asia Pacific on behalf of investors and has dedicated real estate securities investment management offices in Baltimore, London, Sydney, and Tokyo. CBRE GRES principals have an average of 14 years of experience related to the investment management of listed U.S. and global real estate securities portfolios. CBRE GRES is an indirect independently managed subsidiary of CB Richard Ellis Group, Inc.

Place/BV Student Housing Fund Closes on $58.8 Million Project

Edited: Jennifer Brenner
Source: Place Properties

Place/BV Student Housing Fund, LLC, a real estate investment fund focused on the acquisition and development of student housing properties nationwide, announces the closing of the construction loan for Tailor Lofts in Chicago, Illinois. Tailor Lofts will serve the students of more than 20 Chicago area colleges and universities, including the University of Illinois at Chicago, Kent College of Law, Columbia College, Robert Morris University, Roosevelt University, and DePaul University. The project is scheduled for delivery in August 2010. BVP Managers, LLC, a joint venture between Atlanta, Georgia-based Place Properties, an affiliated group of companies and Chicago-based Blue Vista Capital Management, LLC, serves as the Manager of the Fund.

Situated in the heart of Chicago's West Loop, one block from Greek Town and only two blocks from the Blue Line CTA, Tailor Lofts is a redevelopment of a historic landmark that is conveniently located near many area schools. When completed, Tailor Lofts will have 477 beds in 135 fully-furnished units with full kitchens including dishwashers, private bathrooms, and beautiful views of downtown Chicago.

Tailor Lofts amenities will include wireless Internet throughout the building; 42" Plasma TV & DVR in every unit; activity Center with pool tables and gaming systems; computer lab; study rooms; 24-hour fitness center; high-pressure tanning dome; laundry center; and trash chute on every floor.

Bob Clark, EVP, Place Management Group, LLC, said "Downtown Chicago is a vibrant student housing market and Tailor Lofts will fill the void of quality, purpose-built student housing in the market. The project is exceptionally located to serve the metro Chicago colleges and universities."

Blue Vista Capital Management, LLC is a leading national real estate investment management firm with in excess of $550 million in capital under management. Blue Vista has participated in joint ventures representing over $3 billion in total capitalization.

Place Properties, an affiliated group of companies, is one of the country's largest multifamily development and management organizations in the country. Since 1995, Place Properties has developed more than $1.4 billion of student and military housing communities and currently manages more than 21,000 beds.

NCREIF Notes: An Insider's Insight of the 2010 NCREIF Conference

Written By: Bruce A. Kellogg, MAI, FRICS

The weather was chilly in Miami during the February 24-25, 2010, NCREIF Conference, but, while some of the news was warming, one had the feeling that forecasts for the real estate market may be a few degrees below what had been expected as well. NCREIF, the National Council of Real Estate Investment Fiduciaries, is an association of pension fund representatives and those who advise and service them in the course of business. Some of the biggest names in the industry are present, and their representatives are always ready to roll up their sleeves to complete the business of their respective committees that ultimately benefits real estate in numerous ways.

As noted, the committees were busy, but there were numerous opportunities to listen to experienced experts during the conference in general sessions as well. One of the first related to NCREIF’s Real Estate Information Standards (REIS), which develops standards to assist its members and the industry to make prudent decisions about their investments. Tim Schlitzer of MASS PRIM gave us an interesting analogy for the current real estate market compared to what had been experienced about 20 years ago. To paraphrase: The crash in ’91 was equivalent to a one-car auto crash, with the driver pulled to safety. This was mostly a real estate matter, and it took 4 to 6 years to adjust. The crash in ’08 was more like a 50-car pile-up in a snow storm, with much collateral damage. While not pleasant to read, it does graphically articulate what we have all been feeling.

The next general session related to what the data is telling us at year-end 2009:

• Doug Poutasse, CEO, who will soon be retiring from this position, led off with some impressive details relating to NCREIF’s efforts to gather data for its NCREIF Property Index (NPI), used by most major real estate investors. He stated that nearly 80% of all property investments were appraised in all four quarters during the year, a tribute to the attention given to current and accurate data and the respect for the appraisals that were completed both internally and externally.
  
• Bob White, Principal and Founder of Real Capital Analytics, weighed in with perhaps the most optimistic assessment of the market by stating that there are signs of encouragement in the capital markets based on transaction data. He illustrated this by noting recent activities for international investments and within the REITs and CMBS arena. An example was cited that international equity is purchasing distressed properties as they can find good deals, particularly in the U.S.

Another session of note was within the Valuation Committee and it focused on market analysis and the employment of data found therein. PwC ‘s Rick Wincott and Stephanie Dubicki led off the discussion with a David Letterman-like list of the “Top 10 Stupid DCF Highlights of 2009.” Due to space constraints, let’s focus on the Top 3: Grow the distressed Tenant Improvement allowance forever, Load a hyper or distressed cap rate to the reversionary cap rate in the stabilized year and - #1 – Use unsupported rent growth assumptions. The point being made, of course, stresses the need for the best market analysis possible when completing a study or appraisal of a property. Utilizing the appropriate tools without the best input will result in inaccurate conclusions or “Garbage In, Garbage Out,” as we’ve all heard before!

The next Valuation Committee session, led by Ray Cirz of Integra Realty Resources, provided input on actual experiences with assets over the past and into the present. Some of the takeaways are as follows:

• Ted Anglyn, President of Anglyn Property Advisors, has been working in South Florida and Latin America over the recent past and noted that a strength in this real estate market stems from the new Panama Canal development, impacting distribution centers and small-tenant office buildings.
  
• Alan Lester, President of Project Solutions in Miami, provided a sage thought about data sources: It is important to talk to the shoeshine guy if you want to know what is really happening! The point here is to keep your ear to the ground and pick up data from multiple sources during a period when data is not readily available. The caveat, however, is to ensure reliability of data at all times, which the shoeshine guy may not always provide! (No offense intended!)
  
• Katie Scott, of US Equities in Chicago, has had great experience with two of the most prominent multi-use buildings in the country, with both located in her home town: the John Hancock and Willis Tower buildings. She spoke of the process for good and bad assets in good and bad markets. Some of her conclusions were that a bad asset in a good market should be sold, a good asset in a bad market should be purchased and even upgraded, and a bad asset in a bad market should be bulldozed! Of course, we are all familiar with good assets in a good market, as this was the norm throughout the recently ended cycle. Obviously, this resulted in upward-spiraling sales prices that unfortunately came crashing down.

Panel moderator Ray Cirz of Integra Realty Resources, Alan Lester of Project Solutions, and Ted Anglyn of Anglyn Property Advisors (left to right) as they prepare to speak to the Valuation Committee.


Katie Scott of US Equities, Chuck Dannis of Crosson Dannis, Alan Lester and John Hart of Carlton Fields following the panel discussion at the Valuation Committee.

The next general session, moderated by Hans Nordby of PPR, covered the local market of South Florida. He pointed out the tremendous amount of business interaction with Latin America and referred to a recent comment he overheard that people like Miami because it is “so close to the U.S!”

• Tom Crocker, of Crocker REIT and Crocker Partners, discussed the continuing interest in South Florida, especially from those in the Northeast, where the prices are still more attractive in Broward and Dade Counties compared to New York City and the surrounding suburbs.
  
• Manuel de Zarraga of Holliday Fenoglio Fowler added that the Latin American community in South Florida typically invests long-term and seeks being debt-free. Also, while the immigration issue is subject to much controversy elsewhere in the U.S., it is not a major concern in South Florida. In addition, this may be a haven for displaced Haitians at some point.

On a personal note, I reconnected with one of my first mentors /employers while at the conference, whom I had not seen for at least 30 years (although we had spoken several times over the years). Jim Kafes hired me to join Miller & Kafes in Ft. Lee, NJ in 1974 and gave me a tremendous amount of knowledge that I’ve built upon since. I just have to say that it was a great moment for me to see him again and I wish him well in his new position with NPV Advisors.


Bruce the Blogger celebrates his reunion with a great mentor and former employer, Jim Kafes.

The NCREIF Conference is always a great experience of learning, participating, doing some business and renewing / developing friendships. On behalf of ARGUS Software, I think I accomplished all my objectives.