ORLANDO-Boston-based-New Boston Fund Inc., a private equity real estate investment, development and management firm, acquired a controlling interest in the 137,000-square foot Southpoint Executive Center, a Class A office building in the Orlando suburb of Maitland, on May 12th. The former owner of the property, now a minority partner, is the Stiles Corp. of Ft. Lauderdale.
Stiles purchased the Southpoint Executive Center in 2007, but the building, which is 20 years old, lost tenants over the last few years, the most important being Embarq, a telecommunications company, which occupied roughly 60,000 square feet. After the company was acquired by CenturyTel Inc., now CenturyLink, last summer, it left Southpoint.
With the loss of tenants, the lender wouldn’t put new money into the property, says Pryse Elam, southeast regional director for New Boston Fund, which stepped in and paid off the commercial mortgage-backed securities loan on the property. While he declined to say how much his firm paid for the debt, the original loan was $17 million, he says, although New Boston paid a discounted rate.
“The New Boston Fund is sitting on several hundred million dollars in cash,” which it invests in properties such as the Southpoint Executive Center, says Elam. The few office transactions which take place today involve either “trophies and trash,” he says. In the case of the trophies, there is enormous competition for these properties, which drives up prices, while prices for the so-called trash properties keep getting lower, says Elam. “We like to buy the ‘bread and butter real estate,’ which is in the middle,” he says.
Those middle of the road properties are not trading now, says Elam, while their values have fallen 30% to 40% in the last couple of years. The problem they have is that their owners often lack the capital to pay leasing commissions, tenant improvements and debt service, among other expenses, he says. Sometimes these properties have a technical default or even a monetary default, says Elam. “But lenders aren’t foreclosing, because they can see that the real estate is still good,” he says.
With capital from entities like the New Boston Fund, properties are recapitalized, although the previous owner, in this case the Stiles Corporation, now has little equity in the project. In addition to retaining a small ownership interest, Stiles will manage the property, which is now 30% leased, having just acquired a new, 10,000-square-foot-tenant, Taylor Morrison Home Funding, a Canadian real estate company with offices in six states in the US.
New Boston is working on several other transactions similar to the one involving the Southpoint Executive Center in Florida and North Carolina, says Elam. The firm will continue to recapitalize other buildings like the Maitland-based asset, as long as the market continues in its present state, he says.
The New Boston Fund, which is 50 years old, runs a series of closed-end investment funds, which typically exist for seven to ten years. Investors in these funds run the gamut, from wealthy individuals to institutional investors, says Elam.
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