Global Viewpoints

$30M Closes Purchase/Leaseback for Three Assisted Living Facilities and One Specialty Hospital

Edited: Jennifer Brenner
Source: National Health Investors

National Health Investors, Inc. announced a total of $29.7 million in purchase/leaseback transactions. The transactions include three assisted living and memory care facilities totaling 102 units in Minnesota with Suite Living Senior Specialty Services (formerly known as Comforts of Home) for $17.2 million and a 66-bed acute psychiatric hospital known as Alvarado Parkway Behavioral Institute in La Mesa, California with Helix Healthcare for $12.5 million. The purchases were funded with borrowings from NHI’s revolving credit facility. The transactions will bring NHI’s total investments to date in 2010 to $96.7 million.

The assisted living facilities, which are two to three years old, are leased to Suite Living for a term of 15 years at an initial lease payment of $1,720,000 plus annual fixed escalators. Suite Living operates a total of six assisted living and memory care facilities throughout Minnesota with another seven locations under construction or development.

The Alvarado Parkway Behavioral Institute, which opened in 1984 and is certified by the Joint Commission on the Accreditation of Healthcare Organizations (JCAHO), is leased to Helix Healthcare for a term of 15 years at an initial lease payment of $1,500,000 plus annual fixed escalators.

Justin Hutchens, NHI president and COO, noted, “These transactions continue the strong start we have achieved in 2010 with an investment strategy primarily focused on assisted living and skilling nursing facilities and complemented with this select specialty hospital opportunity. Alvarado Parkway Behavioral Institute has been providing acute psychiatric services to San Diego residents for many years, and we are pleased to mark our entry into the California market with this unique, attractive opportunity. Suite Living is a very well-regarded assisted living operator in the Minneapolis-St. Paul area, and these assisted living communities achieve strong operating performance benefiting from a blend of high traffic locations, efficient service delivery and strong management oversight.”

National Health Investors, Inc. is a healthcare real estate investment trust that specializes in the financing of healthcare real estate by purchase and leaseback transactions and by mortgage loans. NHI’s investments involve skilled nursing facilities, assisted living facilities, independent living facilities, medical office buildings, one acute care hospital and one specialty hospital.

Mixed Recovery for US Seaport Industrial Property Markets

Edited: Jennifer Brenner
Source: Colliers International

Industrial occupancy rates for commercial space in and around the nation's most active export-focused ports appear to have stabilized, according to a new white paper from Colliers International that examines the shipping trade's varied impact on industrial demand for space.

The seven-page report, which deftly analyzes how maritime freight volumes impact occupancy rates in the nation's ten largest container seaports, demonstrates how the global recession has vastly reconfigured U.S. shipping and occupancy patterns between 2001 and 2009. Yet some positive trends are beginning to take hold. Among the report's key findings:

• Between 2001 and 2007, containerized trade volumes increased by nearly 60% as the global economic boom triggered a wave of spending on U.S. and foreign goods
  
• Demand for industrial space in these markets followed suit, driving occupancy up by roughly 20% during that period -- faster than any other U.S. commercial real estate asset class
  
• Since the volume of containerized shipping peaked in 2007, average industrial vacancy within these ports actually dropped by 15%
  
• Ports that were chiefly dependent on imports have sustained the greatest vacancy declines -- but those markets that have focused on exports have been the least affected thanks to foreign nations' steady demand for U.S. goods

"We expect that export volume will play an outsized role in the U.S. economy and by extension the largest industrial seaport markets going forward," said Thomas Galvin, regional research analyst for Colliers International, who sees robust export demand as an "antidote" against additional occupancy declines in select industrial port markets.

A critical part of this antidote will come in the form of labor growth. To that end, Galvin believes that the U.S. government will be instrumental in sparking future export growth. In his State of the Union Address, President Barack Obama proposed a program that would double the total volume of American exports in the next five years. Another critical part of the initiative is the creation of roughly two million new jobs, many of which would ultimately fill vacant seaport buildings.

"If these new jobs materialize, they will fuel demand for as much as 500 million square feet of industrial space within our largest port markets. Exports currently account for almost 12 percent of GDP, and that's up from just 4 percent of GDP in 1970. The reason behind this growth is globalization, which will continue to buoy our largest seaports into the future."

In 2009, the total volume of maritime container traffic flowing through the ten largest U.S. ports continued to decline. But the outlook appears to have brightened over the past few months. First, the closely-watched Baltic Dry Index -- a key benchmark which tracks activity within the world's 26 most active shipping lanes -- began ticking upwards in early 2009. While this bellwether indicates that global shipping rates are in fact strengthening, they are nowhere close to the peak rates achieved at the end of 2007. Secondly, and equally as important, the dollar volume of exported goods shipped from the largest U.S. ports showed virtually no declines during the past eight years.

Due to consolidation, a smaller number of seaports will ultimately benefit. The market share of the top ten U.S. seaports (based on the volume of maritime containers passing into and from each market) jumped from 89.2% in 2001 to 91.6% in 2008 -- demonstrating that foreign container ships visited fewer U.S. ports during that seven year period.

The impact was hardly uniform among these markets. The ports with a greater focus on exports such as Houston and Fort Lauderdale sustained less of a slowdown due to the weak dollar that has fueled demand for American goods. Conversely, import-driven ports like Los Angeles, New York and Seattle have been challenged to fill much of their industrial space.

Industrial markets in major port cities are still in the early stages of a recovery. As a sub-set of all U.S. industrial markets, those located in or around major seaports have on average sustained occupancy declines that are greater than the nation as a whole. Of the eight U.S. industrial markets that eked out marginal occupancy increases between 2007 and 2009, only one of these markets was a major U.S. port (Houston). On the bottom of the red column, which lists industrial markets that posted occupancy declines during that period, the last two markets were both ports (Baltimore and Orlando).

ULI Report: Efforts By Europe, U.S., Japan to Shore Up Ailing Financial Institutions Is Having Mixed Success

Edited: Jennifer Brenner
Source: ULI Europe

Government intervention in different countries to shore up ailing financial institutions is having mixed success in reviving their respective economies and real estate markets, according to “Too Big to Fail,” a new report from the Urban Land Institute's (ULI) Europe office. A common sentiment is that an industry recovery will hinge on the extent to which any immediate boost from the aid ultimately results in steady, predictable flows of private capital to real estate.

The recently released report assesses different forms of government intervention implemented since the fall of 2008 in the United Kingdom, Ireland, Germany, Italy, The Netherlands, France, Spain, the United States and Japan, including the impact on the real estate market in those countries.

The need for such massive, near-simultaneous aid by so many governments to stave off financial industry collapse shows how globalized and interconnected capital markets have become over the past two decades, said ULI Europe president William P. Kistler. "The global financial crisis demonstrated that not only is no financial firm too big or too resilient to fail, but that financial firms have become so big that failure would be catastrophic for the world economy. Banks are not too big to fail, but they are too big to be allowed to fail," Kistler said.

ULI is a global research and education institute devoted to responsible land use; ULI Europe, based in London, serves the Institute's 2,300-plus members in Europe. “Too Big to Fail” was commissioned by the ULI Europe Policy and Practice Committee and is the result of a series of interviews with 50 ULI members and their contacts around the globe.

The intervention schemes examined by the report generally fall into three categories:

• Recapitalizations – government injections of cash into banks in return for common shares, preferred shares, warrants, subordinated debt, mandatory convertible notes or silent participations.
  
• Debt guarantees – formal guarantees provided by governments against default on bank debt.
  
• Asset purchase/insurance – governments assume part or all the risk of a portfolio of illiquid assets. Transferring the risk from the banks improves liquidity, and can in some cases provide capital relief.

Key findings from the comparisons by country: The cumulative government support provided to financial institutions as a percentage of the 2008 gross domestic product (GDP) ranged from 3.3 percent for Italy to 81.0 percent for the United States and 81.6 percent for the United Kingdom. The total government debt as a percentage of 2008 GDP ranged from 39.4 percent in Spain to 196.3 percent in Japan, with the UK at 51.9 percent and the U.S. at 70.5 percent. (The report notes that the UK statistics for both financial support and total debt likely will be lowered due to a better-than-expected forthcoming report on the Royal Bank of Scotland's insured assets).

A few country highlights, including amount of government investment since September 2008 (some of which is stretched over years ahead) and impact:

• United Kingdom – 50 billion pounds for recapitalizations; 250 billion pounds for debt guarantees and 282 billion pounds for asset purchase/insurance. "While government support has ensured the short-term stabilization of banks, the fear among investors and developers is that we will witness a 'double dip' rather than a steady recovery; the concern is over a secondary bubble relating to the price of assets, rather than a sign of long term recovery and economic growth."
  
• United States – $700 billion for recapitalizations and $1.45 trillion for asset purchase/insurance. "From a microeconomic level, banks will certainly impose more restrictive commercial real estate lending standards on new loan originations. These will include lower leverage ratios, more simple debt structures with fewer multi-tiered financings, and smaller lending syndicates. However, before confidence is fully restored to the real estate market, the greater uncertainties at the macroeconomic level (impact of reduction of federal aid, a possible increase in interest rates) still need to be addressed."
  
• Ireland – 77 billion euros provided through an asset purchase scheme, the National Asset Management Agency (NAMA). "Some investors are skeptical about the ability of NAMA to manage the (high volume) of assets. Overall, however, the scheme has received positive feedback. General opinion is that Ireland will start to recover when the government intervention is reduced and there is a return of the credit markets."
  
• Germany – 80 billion euros for recapitalizations and 400 billion euros for debt guarantees and asset purchase/insurance. "Banks' business models are now under long-term scrutiny by the German government and the European Commission. Many German investors believe this is what the industry needs; they predict that the banking industry will need to prepare for further restructuring."
  
• Italy – 10 to 12 billion euros for recapitalizations, plus a tax amnesty scheme. "With its low private debt and implementation of schemes that do not impact greatly on the public debt, Italy's relative economic situation should remain similar to what it was before the crisis."
  
• The Netherlands – 20 billion euros for recapitalizations; 200 billion euros for debt guarantees and 27.7 billion euros to ING for asset purchase/insurance. The European Commission's action forcing ING to split its banking and insurance businesses and sell the insurance portion reflects a plan to "break down large conglomerates so if another crisis occurs, it will be easier to manage. Investors in The Netherlands believe the next few years are crucial for witnessing this type of action."
  
• France – 10.5 billion euros for recapitalizations and 265 billion euros for debt guarantees. "It is clear from the interventions employed by the French government that the property industry is not a high priority. The government has agreed to support the refinancing of banks on the condition that banks lend to the corporate sector to ensure the prevention of a financial crisis there, rather than the real estate sector. While many agree there is no imminent real estate crisis in France, they suggest that there is the possibility of one between 2010 and 2014 and their concern is that the government will not be prepared."
  
• Spain – 200 billion euros for debt guarantees and 50 billion euros for asset purchase/insurance, plus 9 billion euros for a bank restructuring scheme. "The feeling shared by developers, investors and a majority of the public is that private consumption will support long-term economic recovery, not political measures. The fear is that extremely high public debt due to government intervention will negatively affect private consumption, stunting Spain's economic recovery."
  
• Japan – 13 trillion yen for recapitalizations, plus 2 trillion yen for commercial paper purchases and assets backed by commercial paper. "While funds and new real estate firms have suffered, Japanese-established companies with longer investment horizons are playing the group card in an attempt to hold on until times get better. Japan will muddle its way through the downturn, waiting for the U.S. to turn around."

“Too Big to Fail” was published with support from Shearman & Sterling LLP, a leading international law firm with over 900 lawyers providing a wide range of legal services through a network of 20 offices in the world's major financial centers.

JCR Capital Holds First Closing of Commercial Real Estate Opportunity Fund

Edited: Jennifer Brenner
Source: JCR Capital

JCR Capital, a Denver-based commercial real estate finance company, announced its first closing of the JCR Capital Distressed & Opportunistic Real Estate Fund I, LP ("the Fund").

"We are very pleased with this closing and it is a significant first step for our fund management strategy," said Jay Rollins, JCR president. The Fund's strategy is to be a provider of capital to the commercial real estate industry, as opposed to being a buyer of assets. The Fund will provide debt, participating debt, preferred equity and equity to distressed and opportunistic real estate transactions.

According to Rollins, the supply/demand imbalance that exists in the commercial real estate finance market has created the most attractive investment environment since the previous dislocation during the RTC era.

"The waves of maturing debt on commercial real estate are just beginning and the capital markets have not yet recognized their losses, " said Rollins. "The opportunities to provide capital at a reset basis are now starting to appear and will last for some time. We believe that seasoned providers of capital, and those who do not have any legacy assets, will be well positioned to take advantage of the current environment."

Rollins also noted, "We believe our strategy is unique, as we are focusing on working with sponsors and entities which control the assets, thus avoiding the bid/ask gap that currently exists." The Fund will target existing borrowers, contract purchasers and legacy lenders, specifically community banks. JCR has developed specific strategies focused on providing community banks a "bad bank joint venture" option.

The Fund has three anchor investors:

• PartnerRe Capital Markets Corp.: A Greenwich, Connecticut based subsidiary of PartnerRe Ltd. , a Bermuda based reinsurance company.
  
• JAM Equity Partners: A private equity firm based in New York and Los Angeles.
  
• Branzan Investment Advisors: A Denver-based money manager.

The initial closing included a $5 million entity level commitment to JCR Capital and $17 million in investment capital to The Fund. The Fund will remain open for 90 days to accommodate a number of investors who have indicated a strong interest, as well as new investors, to allow JCR to reach its targeted fund size of $25-30 million.

The Fund will focus on smaller transactions ranging from $1-10 million. President Jay Rollins commented, "We believe there is more opportunity in smaller transactions at this time. There is less competition and exit strategies are easier to achieve because there is more liquidity in the small balance market." For larger transactions, JCR will use L.P. co-investment capital and will team up with a long time managed account relationship.

JCR's principals, Jay Rollins and Maren Steinberg, have 40 years of combined experience investing in the commercial real estate finance market, and have spent 15 of the past 17 years working together on three different platforms. Rollins founded JCR in 2006 after leaving GMAC's Commercial Mortgage Structure Products Group, where Rollins was a Managing Director.

AMB Leases 142,000 SF in London Development Project

Edited: Jennifer Brenner
Source: AMB Property Corporation

Property Corporation has leased approximately 142,000 square feet (13,200 square meters) in its AMB East London Distribution Park. This new lease, to a FTSE 100 company, brings the two-building park to 100 percent leased.

"We are pleased to welcome this new customer to our portfolio in London," said Mo Barzagar, managing director, Europe. "Throughout the UK and continental Europe we're seeing a growing number of our customers whose expanding business needs require class-A facilities with increased access to their customers."

AMB East London Distribution Park is a two-building facility situated in Binary Park adjacent to a major highway that connects Central London to the M25, London's Orbital. It is located within ten miles of Central London and seven miles to the east of the 2012 Olympic Games site.

AMB's Europe portfolio totaled nearly 14 million square feet (1.3 million square meters) of operating and under development properties as of December 31, 2009.

AMB is an owner, operator and developer of global industrial real estate, focused on major hub and gateway distribution markets in the Americas, Europe and Asia. As of December 31, 2009, AMB owned, or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects expected to total approximately 155.1 million square feet (14.4 million square meters) in 47 markets within 14 countries. AMB invests in properties located predominantly in the infill submarkets of its targeted markets. The company's portfolio is comprised of High Throughput Distribution® facilities—industrial properties built for speed and located near airports, seaports and ground transportation systems.