Sean Ryan is associate editor of Real Estate New Jersey.
EDISON, NJ-The current financial climate is making public-to-private conversions more of a workable idea. A panel of experts discussed the matter at a New Jersey chapter meeting of Naiop yesterday here.
The past few months has seen a wave of public companies going private like never before. Private companies do not need to be as transparent in their financial dealings as public companies, and do not need to be so open with their business strategies. The Blackstone Group's $39-billion acquisition of Equity Office Properties Trust showed that there is no upper limit to these transactions.
It's tougher to make a great deal of money off local buildings than is has been in the past, said George Sowa, EVP and senior managing director of Brandywine Realty Trust. Thanks to tenants' better utilization of their existing space, a lack of new job growth and new development, some of it speculative, the margins are not comfortable.
Michael Maturo, president and CFO of RexCorp Realty, the new company formed after SL Green Realty Corp.'s $6-billion acquisition of Reckson Associates Realty Corp., told of the problems the pre-merger Reckson had finding buildings to buy. Prices were so high, it was tough to find opportunities where it could add value. "If we can't buy, it might be time to sell," Maturo said.
Michael DeFelice, managing director of North America for Deutsche Bank Securities, said "You see highly-leveraged companies going private in every sector." Continual low interest rate combined with an expanded base of investors are feeding this process. "There seems to be a higher appetite for risk."
Opportunities in these huge mergers arise when the acquirer sells off the non-core properties. Blackstone, for example, has been shedding buildings and regional portfolios to a host of buyers; including the most recent sale of 1.7-million-sf of Stamford, CT properties to RFP for $850 million.
Jeffrey Title, principal of Guggenheim Real Estate, points out there is still a lot of untapped capital in America for this sort of investments. The 401K market is one of the biggest pots of money, he said.
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