KBS Strategic Opportunity REIT has purchased the Westmoor Center office complex in the Westminster, Colo. submarket for $86 million.

Located at 10055-10385 Westmoor Dr., the six-building Class A Westmoor Center office portfolio totals 612,890 square feet and is situated between Denver and Boulder, close to the expanding city of Broomfield, with views of the Heritage Golf Course at Westmoor and the Rocky Mountains.

The area is the hub of hi-tech employment, which can be attributed in part to the University of Colorado’s Boulder campus, with thousands of graduates trained for hi-tech research, manufacturing and information technology services.

Constructed in 1998-99, Westmoor Center offers gazebos wired with Internet access for working outside, Broomfield park-n-ride is nearby and there is a free shuttle service to and from the FlatIron Crossing shopping mall.

The six buildings that encompass Westmoor Center are part of the larger, 10-builidng, Ten West at Westmoor Business Park.

At the time of the sale, the center was 81-percent occupied by such tenants as Ball Corporation, Lender Processing Services and Datalogix.

According to a company release, KBS Strategic Opportunity REIT plans to invest in and manage a diverse portfolio of real estate-related loans, opportunistic real estate, real estate-related debt securities and other real estate-related investments.

The public non-traded real estate investment trust based in Newport Beach, Calif., and its affiliated companies now owns six office properties in the area, totaling more than 1.7 million rentable square feet. This includes the 561,691-square-foot Granite Tower in Denver, the 264,194-square-foot Peakview Tower in Centennial, Colo., Denver’s 128,845-square-foot 210 University, the 92,099-square-foot Academy Point Atrium I in Colorado Springs, Colo., and the 82,320-square-foot Crescent VIII in Greenwood Village, Colo.

KBS Strategic Opportunity REIT was sponsored indirectly by Charles Schreiber, Jr., Peter Bren, Keith Hall and Peter McMillan III and is advised by KBS Capital Advisors L.L.C., an affiliated entity, which is indirectly owned and controlled by KBS Strategic Opportunity REIT’s sponsors, said or implied by such forward-looking statements.

Rockwall Medical Office Building II, Rockwall, Texas

The Griffin-American Healthcare REIT II, Inc. has recently acquired 21 healthcare-related buildings in five states for $141.3 million pushing the REIT sponsored by American Healthcare Investors and Griffin Capital Corp. to an overall portfolio value of $1.56 billion.

The acquisitions announced Monday include 17 medical office buildings and four skilled nursing facilities in Georgia, Illinois, Indiana, Oregon, Pennsylvania and Texas. The Newport, Calif.-based REIT’s portfolio now comprises 174 buildings in 28 states and includes medical office buildings, skilled nursing facilities, hospitals and assisted living facilities. Since January 2012, the REIT has grown by 255 percent based on purchase price, according to a news release from the co-sponsors. Formerly known as the Grubb & Ellis Healthcare REIT II, the REIT’s portfolio is about 96 percent eased with a weighted average remaining lease term of approximately nine years and leverage of 21.7 percent. 

“We continue to source attractive acquisitions on behalf of Griffin-American Healthcare REIT II and its stockholders,” Danny Prosky, a principal of American Health Investors and the REIT’s president and COO, said in the news release. “In a competitive market, we are proud to be among the most active buyers of healthcare real estate as we continue to build a diverse portfolio on behalf of stockholders.”

The largest of the properties acquired since April 26 is the Central Indiana Medical Office Building Portfolio, comprised of 11 medical office buildings in and around Indianapolis for about $80.7 million. This completes the REIT’s purchase of the 17-building, $123 million portfolio purchased in several tranches from affiliates of the Cornerstone Companies, Inc. In all, the portfolio comprises about 594,000 square feet of space in Avon, Bloomington, Carmel, Fishers, Indianapolos, Lafayette, Muncie and Noblesville. The portfolio has 80 tenants and an occupancy rate of 94.6 percent. 

Other medical office properties added by the REIT include Rockwall Medical Office Building in Rockwall, Texas, a18,000-square-foot, fully leased asset on the campus of Texas Health Presbyterian Hospital acquired for $5.4 million and the Des Plaines Surgical Center in Des Plaines, Ill., a three-story, 47,000-square-foot medical office building that is fully leased to 11 tenants. The purchase price of the property located about a mile from Advocate Lutheran General Hospital was not released.

The REIT bought Winn Medical Center Medical Office Portfolio in Decatur, Ga., four two-story buildings adjacent to DeKalb Medical Center and about two miles from Emory University Hospital for $9.85 million. The properties, which total about 65,000 square feet, were built in 1976 and renovated between 2010 and 2012.

The 21 acquisitions were financed with cash, assumption of $53 million in debt and limited partnership units of Griffin-American Healthcare REIT II Holdings, L.P., the REIT’s operating partnership.  The operating units were issued to the sellers of the Central Indiana Medical Office Building Portfolio as partial payment for that part of the acquisition.

The REIT acquired two skilled nursing facilities totaling 75,000 square feet and 263 beds in Milton and Watsontown, Pa., for $13 million. The properties are fully leased by Mid-Atlantic Health Care L.L.C. under a 15-year absolute net lease.

A 42,000-square-foot, 115-bed facility in Pittsfield, Mass., acquired for $16 million and a 25,000-square-foot, 43-unit facility in Grants Pass, Ore., that can operate up to 102 beds purchased for $6.6 million make up the remainder of the skilled nursing facilities the REIT bought. The Pittsfield property s fully leased to Trinity Healthcare Systems L.L.C. under a 15-year absolute net lease with annual 3 percent rent increases. The Fairview Skilled Nursing Facility in Oregon was bought from an affiliate of Regency Pacific, which is leasing the property for 13 years under a net lease.

In early April, the REIT announced it had acquired five medical office buildings for a total of $46 million in Westminster, Colo.; Stockbridge, Ga.; Noblesville, Ind.; Novi, Mich., and West Bloomfield, Mich. The properties were financed through the assumption of $6.3 million of existing debt; $33.9 million from its unsecured line of credit with Bank of America, N.A., cash and units of limited partnership in the REIT’s operating partnership.

A month earlier, American Healthcare Investors and Griffin Capital Corp. said they had purchased five medical office buildings for the REIT for $47 million. The properties are in Abilene, Texas; Ruston, La.; and Greeley, Colo., and were financed using $44 million from the Bank of America line of credit and cash.

In late May, the co-sponsors said they had expanded the REIT’s unsecured revolving line of credit from $200 million to $450 million. New lenders Barclays Bank PLC, Third Bank, Wells Fargo Bank, N.A., Credit Agricole Corporate and Investment Bank and Sumitomo Mitsui Banking Corp. joined existing lenders Bank of America, KeyBank National Association, RBS Citizens, N.A. and Comerica Bank.

At the time, Jeff Hanson, the REIT’s CEO and a principal of American Healthcare Investors, said in a news release that the REIT was “well-equipped to continue its rapid growth.”

The REIT was very active in 2012, when it more than tripled its portfolio with $866 million in acquisitions. By Dec. 31, 2012, the REIT had 139 properties in 27 states acquired for about $1.325 billion. Prosky noted it was a record year for the REIT that became more broadly diversified in asset type, geography and revenue sources.

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The most visible vehicles bearing the Inland name are the six REITs sponsored by Inland Group’s affiliates since 1994, four of which are still associated with the group. Acting in a role comparable to an incubator or venture-capital player, Inland Group conceives the REITs, recruits executives and directors, and shepherds each entity through the regulatory process. The REIT is then led by its executives and independent board.

Mostly non-traded, the REITs pursue investments across a broad spectrum of locations and property types, but they have at least one crucial connecting thread:  All are sponsored by Inland Real Estate Investment Corp.  The newest REIT was launched last year. Here is a brief update on their status and activities. More about Inland Group appears in the July issue of CPE.

•  Inland American Real Estate Trust Inc., a non-traded REIT, managed 759 properties as of March 31. Retail properties account for the bulk of those assets—550, at most recent report—and in May, Inland American announced the creation of a $600 million, retail-focused joint venture. Together with PGGM Private Real Estate Fund, a Dutch pension manager, Inland American will target necessity-based, multi-tenant retail properties in Texas and Oklahoma. Inland American is also active in the hospitality sector. Inland American Lodging Advisor Inc. had 91 hotels under management as of April 19, when it reported the $80 million acquisition of Residence Inn Denver City Center. Inland American’s student housing subsidiary, Inland American Communities, started construction in April on a 300-unit project near the University of North Carolina campus in Charlotte, N.C.
• Inland Diversified Real Estate Trust Inc., a non-traded REIT, owned 142 office, retail and multi-family assets as of March 31. Recent acquisitions include the $296.3 million acquisition late last year of six Las Vegas-area retail centers anchored by home improvement or grocery stores. Inland Diversified also paid $29.8 million for Hasbro’s corporate headquarters in Providence, R.I. Change may be on the horizon for Inland Diversified, which fully invested its capital at the end of last year. On June 7, its board of directors said that a special committee of independent directors would review alternatives for a potential liquidity event.  In its statement, however, the board emphasized that no decision has been made, nor is there a timetable for a liquidity event.
• Inland Real Estate Income Trust Inc., the newest REIT sponsored by Inland Real Estate Investment Corp., made its debut last year with a $1.5 billion initial offering. Its stated mission is to acquire a diversified portfolio of assets. Last fall it announced its first acquisitions, primarily Dollar General stores in Alabama, Georgia and Tennessee.
• The sole publicly traded REIT currently under the Inland banner is Inland Real Estate Corp., which owns and operates necessity-based retail properties. As of March 31, the company owned a 15.3 million-square-foot portfolio of 154 community, neighborhood, power, lifestyle and net-leased retail properties, about 80 percent of them in metropolitan Chicago. Another 18 percent of the portfolio is located in the Minneapolis-St. Paul market. On June 3, the REIT reported that it had closed on its acquisition of the 50 percent stake held by the New York State Teachers’ Retirement System in their joint venture, dubbed IN Retail Fund L.L.C At most recent report, that fund owned 13 centers comprising 2.3 million square feet.
• Two REITs are no longer part of Inland Group. In a blockbuster 2007 deal valued at $6.2 billion, Developers Diversified Realty Inc. acquired the assets of Inland Retail Real Estate Trust Inc., a non-traded REIT. That portfolio encompassed 43.6 million square feet and 307 properties, mostly community centers, neighborhood centers or net-leased retail properties. The most recent REIT to separate from Inland Group is Inland Western Retail Real Estate Trust Inc. In 2012, the company launched an initial public offering and became a self-advised, self-managed publicly traded company. Under its new name, Retail Properties of America Inc., the company manages 264 assets totaling 39 million square feet. Still based in Oak Brook, Ill., RPAI is led by president & CEO Steven Grimes.

Inland Real Estate Corp. acquired the 50 percent ownership stake in IN Retail Fund held by its joint venture partner, New York State Teachers Retirement System, for $121 million in cash, making it the sole owner of the 2.3 million-square-foot Midwest retail center portfolio.

IN Retail Fund was established by Inland, an Oakbrook, Ill.-based REIT, and NYSTRS in 2004. It currently has 13 shopping centers, most located in the Chicagoland area, and is valued at approximately $395.6 million. The acquisition capitalization rate is 6.7 percent. The portfolio has total current outstanding mortgage debt of about $152.2 million, plus other related assets and liabilities, according to an Inland news release.

Clarion Partners, the real estate investment manager representing NYSTRS, issued its own news release stating the sale was for $197.3 million.

“The difference between $121 million in cash noted in our release and NYSTRS’s number of $197.3 million is NYSTRS’ portion of secured debt on the portfolio,” an Inland spokesperson told Commercial Property Executive.

“While we have enjoyed a successful partnership with Inland, the opportunity to exit at this pricing level on a highly efficient basis was very compelling,” Mark Weld, a managing director at Clarion Partners in charge of the portfolio for NYSTRS, said in the Clarion release.

Inland President and CEO Mark Zalatoris also used the word “efficient” in his comments about the transaction.

“This venture has been a capital-efficient way for the company to acquire premier retail assets while enhancing our yield on investment,” he said in the Inland release. “However, the opportunity to acquire NYSTRS’ interest at this time advances our strategic goals to increase the size and quality of our consolidated portfolio, simplify our ownership structure and strengthen our balance sheet.”

As of March 31, the portfolio was 97.5 percent leased. It is comprised of 11 neighborhood, community and power shopping centers in the Chicagoland area; one neighborhood retail center in a suburb of Minneapolis-St. Paul; and one community retail center near Racine, Wis. The acquisition increases the amount of total assets owned by Inland to $1.6 billion. Inland’s consolidated portfolio now derives 65.1 percent of its net operating income from properties in Illinois and 16.3 percent of NOI from Minnesota properties. Wisconsin assets will comprise approximately 5.7 percent of NOI, according to Inland.

The REIT’s top five retail tenants are Roundys, 5.8 percent of the consolidated portfolio’s annual base rent; Safeway, 3.8 percent; AB Acquisitions (Jewel Food Stores), 3 percent; CarMax, 2.9 percent, and TJX Companies, 2.8 percent.

The largest shopping center in the IN Retail Fund portfolio is Orland Park Place, a 592,495-square-foot power retail center in Orland Park, Ill., that includes Old Navy, Bed, Bath & Beyond, Dick’s Sporting Goods, Marshall’s and Ross Dress for Less. Two other Chicagoland shopping centers with more than 200,000 square feet each are Randall Square in Geneva, Ill., which also has Marshall’s, Old Navy and Bed, Bath & Beyond as tenants, and Woodfield Commons E/W in Schaumburg, Ill., which features Toys R Us, REI and Hobby Lobby.

Several grocery stores are included in the portfolio, including Food 4 Less, Jewel Food Stores, Whole Foods Market, Cub Foods and Pick ‘N Save.

“The joint ventures we have established with institutional partners such as NYSTRS, have been instrumental in advancing our growth objectives,” Zalatoris said in the Inland release. “Since its formation in 2004, the IRC-NYSTRS joint venture has added more than $300 million in gross value to our total portfolio and provided approximately $8.5 million in high-margin fee income as of March 31, 2013.”

The REIT is paying for the acquisition with the proceeds of a public offering expected to have net proceeds of between $91.6 million and $105.3 million, before expenses, as well as cash on hand and its $175 million credit facility.

Inland is a self-administered and self-managed publicly traded REIT that owns and operates open-air shopping centers and single-tenant properties primarily in the Midwest.

NYSTRS is the second largest public investment system in New York and one of the largest systems in the United States.

Clarion Partners, based in New York City, has offices throughout the U.S. and in Mexico, Brazil and England. It has more than $28 billion in total assets under management. Also this week, Clarion acquired 100-104 Fifth Ave., a 17-story, 277,412-square-foot, Class A, office property in New York City’s Midtown South submarket for $230 million.

SpringHill Suites, Louisville

During the period between the closing of its initial public offering in February 2011 and the end of 2012, Summit Hotel Properties Inc. amassed a portfolio of  24 properties, and with the recent purchase of six assets for an aggregate $170.1 million, there appears to be no end in sight to the company’s shopping spree.

“These acquisitions squarely hit the marks of our simple strategy; top brands in top markets,” Dan Hansen, president & CEO of Summit, said in a prepared statement.

Summit added 786 guestrooms to its collection in one fell swoop with the $153 million purchase of four hotels from White Lodging Services Corp. The deal took the lodging REIT to new territory, literally. The 135-guestroom Fairfield Inn & Suites by Marriott and the 198-guestroom SpringHill Suites by Marriott in Louisville, Ky., mark Summit’s debut in the southern city. The company made its entrée into Indianapolis with the remaining two properties, a 156-guestroom SpringHill Suites by Marriott and a 297-guestroom Courtyard by Marriott. 

In addition to completing the White Lodging transaction, Summit just snapped up a Holiday Inn Express & Suites in Minnetonka, Minn., and a Hilton Garden Inn in neighboring Eden Prairie, for a total of $17.1 million, thereby increasing its presence in metropolitan Minneapolis by 190 guestrooms. 

And evidently, there’s more to come. In research released just days ago, wealth management and private equity firm Robert W. Baird & Co. notes that Summit’s outlook remains solid and that it expects the REIT to carry on buying assets in both one-off and portfolio deals.

“Summit continues to grow its portfolio and is gradually moving toward more urban, higher-growth assets similar to its recent acquisitions in downtown Indianapolis and Louisville,” Michael Bellisario, research analyst with R.W. Baird, told Commercial Property Executive. “The company has a full pipeline and is still seeing limited competition from other buyers, which has allowed Summit to acquire properties at attractive yields.” 

Other additions to Summit’s rapidly expanding group of hotels this year include the 252-room Holiday Inn Express property on San Francisco’s Fisherman’s Wharf, which the REIT picked up for $60.5 million through a joint venture, and a three-property portfolio of Hyatt hotels that came with a price tag of $36.1 million. Summit also entered into a definitive agreement to become the new owner of five assets in metropolitan New Orleans in a deal valued at $135 million.

CBRE Strategic Partners U.S. Value 6, a Los Angeles–based fund sponsored by CBRE Global Investors, has purchased Three Ravinia, a 31-story, 813,750-square-foot trophy office building in north suburban Atlanta, the fund announced Friday. The off-market transaction was for $144.3 million, according to a release by the seller, Colonial Properties Trust, of Birmingham, Ala.

The building, developed by Gerald Hines Interests and completed in 1992, is in Dunwoody, in metro Atlanta’s Central Perimeter submarket, reportedly the largest concentration of office space in the Southeast.

“The Perimeter submarket experienced significant net office absorption in 2012 and is projected to have accelerated job growth in the near-term,” Vance Maddocks, president of CBRE Strategic Partners U.S., said in a release.

Three Ravinia is currently 91 percent occupied, and InterContinental Hotels Group occupies almost 50 percent of the building, a CBRE spokesperson told Commercial Property Executive.

As part of a strategy to address near-term lease expiration risk, the buyer is planning a capital campaign to upgrade building systems and the amenities package, as well as make cosmetic improvements to common areas and begin seeking LEED Silver certification.

The property was unencumbered, according to the seller, and sales proceeds were used to repay a portion of the outstanding balance on Colonial Properties Trust’s unsecured credit facility.

“The disposition of Three Ravinia is a significant step in the execution of our multi-family-focused strategy and strengthens the company’s balance sheet,” Colonial chairman and CEO Thomas Lowder said in the REIT’s release. “Following the disposition, 95 percent of the company’s net operating income will be generated from our multi-family portfolio.”

As of the fourth quarter, the average Central Perimeter Class A office vacancy was 15.3 percent, versus an overall 18.5 percent rate for metro Atlanta, according to CBRE. In addition, the submarket absorbed more than 950,000 square feet of office space in 2012.

CBRE Strategic Partners U.S. Value 6 has been very active of late. Among its recent acquisitions was its first hotel, the 506-room San Jose Marriott, for roughly $83 million.

Hines Global REIT Inc. has added the Campus at Playa Vista, a 325,000-square-foot office complex in the Playa Vista neighborhood of West Los Angeles, to its portfolio. The REIT acquired the premier, well-leased asset from Tishman Speyer for $218 million.

It was, roughly, a half-cash, half-debt deal for Hines, which financed the acquisition of the property with proceeds from its it public offerings and a mortgage loan of $115 million.

Developed by Tishman, the Campus at Playa Vista sprouted up on seven acres in the nearly 1,100-acre Playa Vista master-planned community in 2009, offering four four-story office buildings with the addresses of 12015, 12025, 12035 and 12045 East Waterfront Dr. The complex garnered a great deal of attention from the start. In advance of the property’s completion, lead tenant Belkin International Inc. staked its claim to 150,000 square feet for its corporate headquarters in an agreement that will keep the technology manufacturer in its two-building home until fall 2021, and the University of Southern California’s Institute for Creative Technology followed with a deal for 103,200 square feet  under a lease scheduled to expire in 2020.

Today, with a roster of seven predominantly tech-industry tenants, the Campus at Playa Vista is 97 percent leased. It’s a feat that belies the current state of the Playa Vista submarket where, according to a report by commercial real estate services firm Transwestern, the total vacancy rate in the first quarter was 33.4 percent. The vacancy rate for West Los Angeles is 16.4 percent, and in metropolitan Los Angeles it was 16.4 and 18.7 percent, respectively.

“We were attracted to this property due to its strong tenancy, recent construction, excellent access and long-term prospects for this emerging West L.A. submarket.” Doug Metzler, managing director with Hines, said in a prepared statement. “The Lower West L.A. submarket is one of the most attractive office markets on the West Coast.”

The entertainment, media and technology firms take to West Los Angeles like bees to honey, which has led to a steady increase in rents, while rates remain flat for metropolitan Los Angeles, per the report.

And investors are willing to pay the big bucks for West Los Angeles assets. The average office sale price during the first quarter was $300 per square-foot in metropolitan Los Angeles; the average price for the four leading building sales in West Los Angeles was just over $482 per square-foot. The Campus at Playa Vista sold for approximately $670 per square-foot

American Campus Communities, Inc., has begun construction on a 325-unit faculty and staff housing project at Princeton University, its second development at the New Jersey school but the REIT’s first that’s not for students.

The Merwick-Stanworth project, located on two contiguous university-owned sites just north of the main campus along Route 206/Bayard Lane, will be built in phases with completion expected in three years. The first 127 units are slated for delivery by summer 2014 with the remaining 198 units to be ready between late 2015 and summer 2016. They will consist of one-, two- and three bedroom apartment and townhome units and are expected to receive LEED Silver certification.

The dollar amount of the development was not released by ACC or by Princeton University. ACC, an Austin, Texas, based REIT, will develop, own and manage the Merwick-Stanforth housing units through a 70-year ground lease. The deal is being done under ACC’s American Campus Equity (ACE) program, in which ACC serves as the college or university’s sole partner and doesn’t charge them fees up front. ACC gets financial returns through long-term cash flow and benefits of ownership. The REIT has used ACE on other developments including Portland State University, University of New Mexico, Arizona State University and Northern Arizona University, according to an ACC spokesperson. ACE was used on a student housing project at Drexel University, due to open this fall, she said.

“Many factors are taken into account when a university and ACC decide to do a tax-exempt structure or an ACE transaction,” the ACC spokesperson told Commercial Property Executive. “Lately, we’ve seen a pretty even split between the two models.”

While this is ACC’s first faculty and student housing project in the United States, it is the firm’s second development at Princeton University. The REIT is also building the Lakeside Graduate Student Housing project south of Faculty Road. Scheduled for completion in summer 2014, Lakeside replaces the Hibben and Magie apartments and will have capacity for 715 residents in 329 units.

Both developments are part of the University’s Housing Master Plan, which began in 2005 to upgrade campus housing facilities.

“We are honored to help deliver premier housing for Princeton faculty and staff,” Bill Bayless, American Campus CEO, said in a news release. “By providing an affordable housing option with updated amenities and located in a vibrant neighborhood convenient to campus, this community will be a wonderful place to live.”

As part of the municipality of Princeton’s 20 percent affordable housing requirement for new residential projects, apartments for low-and moderate-income families will be included in the Merwick-Stanworth buildings. Those units are available to the general public.

In recent months, ACC, the largest owner, manager and developer of student housing in the U.S., has also made news for purchasing a large portfolio. The REIT picked up a 19-property, 12,049-bed student housing portfolio for about $863 million from Kayne Anderson Advisors, L.P. affiliates. It comprises properties at 14 universities including Michigan State University, Louisiana State University, University of Kentucky, University of Southern California and Virginia Commonwealth University.

Jack Cuneo

By Gail Kalinoski, Contributing Editor

Less than a month after telling shareholders it was exploring ways to provide a “liquidity event,” Chambers Street Properties, a self-managed Maryland REIT, made it official Tuesday, announcing it intends to list its common shares on the New York Stock Exchange. The REIT said it expected to be trading on the NYSE under the ticker CSG on or by May 21.

The REIT, which has its headquarters in Princeton, N.J., also said it was planning a modified “Dutch Auction” tender offer to purchase as much as $125 million of its common shares. Chambers Street would select the lowest price within a range of $10.10 and $10.60. The tender offer will be paid for with funds from its unsecured revolving credit facility.

In an April 2 letter to stockholders, Chambers Street president & CEO Jack Cuneo said the firm had hired Wells Fargo Securities L.L.C. and Citigroup Global Markets Inc. as its financial advisors. He noted listing its shares on a national exchange was a possible outcome as it positioned itself for a “future liquidity event.”

The firm’s board of trustees deemed listing on the NYSE to be “in the best interest of the company and its shareholders,” according to a news release from Chambers Street Tuesday.

“Chambers Street believes that a listing will enable it to continue to execute its asset management, portfolio growth, and capital strategies designed to maximize shareholder value,” the release stated. “Publicly traded real estate companies have enjoyed strong returns in recent years, and companies that own net lease properties, similar to Chambers Street, are trading at attractive valuations. In addition, Chambers Street believes that a listing on the NYSE will provide access to additional potential investors as well as to a broader range of potential sources of capital.”

Because of the pending listing, Chambers Street officials could not comment beyond the firm’s news release.

The plan for public listing comes as the REIT has had a particularly active year since changing its name from CB Richard Ellis Realty Trust last June and moving to self-management. The REIT has about $3.2 billion in real estate holdings in the United States and abroad. It currently owns or has majority interests in 129 properties, mostly industrial and office assets, in 22 U.S. states, Germany and the United Kingdom. As of Dec. 31, 2012, the portfolio was 98 percent leased to 272 tenants, with diversity in locations, industries and lease expirations.

Two weeks ago, Chambers Street said Big O Development Inc., a major tenant at its Summit Distribution Center property in Salt Lake City, had signed a five-year lease renewal. An automotive tire distributor, Big O leases more than 100,000 feet of the 275,000-square-foot center, acquired in 2010 as part of a seven-property industrial portfolio.

Celebration Office Center, Orlando

Chambers Street has made four big acquisitions so far this year, including acquiring the remaining interests in 17 properties it owned in joint venture with Duke Realty Corp. The portfolio, which sold for a reported $98.6 million, comprised 16 office properties and one industrial asset, an 820,000-square-foot warehouse/distribution facility in Phoenix. The office properties included three buildings with a total of 542,000 square feet in Cincinnati and two buildings with a total of 451,000 square feet in Columbus. Other properties were located in Dallas; Fort Lauderdale; Houston; Minneapolis; Raleigh, N.C.; and two in Orlando  – Celebration Office Center and Northpoint III, with a total of 209,000 square feet.

In February, Chambers Street made its first acquisitions in the Philadelphia area, closing on two office buildings totaling 300,000 square feet in Malvern, Pa. The two buildings were developed by Chambers Street, then still known as CB Richard Ellis Realty Trust, and Trammell Crow, a CBRE Group subsidiary, in joint venture and leased to Endo Health Solutions.

L to R: Randall Row (moderator); David Neithercut, Equity Residential president & CEO; Debra Cafaro, Ventas Inc. chairman & CEO; Mchael Fascitelli, Vornado Realty Trust former president & CEO; Roy March, Eastdil Secured CEO

Speaking at the DLA Piper 11^th Global Real Estate Summit in Chicago yesterday, industry movers and shakers remained only cautiously optimistic about the future of commercial real estate, despite several indicators pointing to a rebirth of the field.

“U.S. commercial real estate markets are viewed as stable havens; real estate cap rates will also remain steady,” said Jay Epstien, DLA Piper U.S. Real Estate Practice chair, during the introduction of the conference. “U.S. commercial real estate is on the right track, (but the) question remains, will we not repeat mistakes of the past?”

Several of the panelists speaking at the summit, which one speaker called the “Woodstock of commercial real estate professionals,” commented on the return of commercial mortgage-backed securities showing that commercial real estate lending is back and reflecting good times for borrowers. Even though the CMBS market is nowhere near the $230 billion in sales registered in 2007, it reflects a steady recovery, with $7 billion available in the fourth quarter of 2012. Roy March, CEO of Eastdil Secured, said more than $85 billion is expected, with $30 billion already issued to date, “and this is the bottom line of where loan pricing is today,” he said.

CMBS is seen as a necessity by some. At its prime in 2007, it backed 40 percent of all commercial real estate lending. Nevertheless, some attendees expressed a fear of the return of CMBS, reflecting on the mid-2007 national subprime crisis and subsequent credit squeeze, which shut down the main lending arena for property investment CMBS – sending commercial property prices into a downward tailspin. Still, more loan availability makes CMBS an attractive investment as long as lenders take a serious look at the new rating agency and are willing to do proper due diligence prior to handing over money.

Overall, the real estate debt market is characterized by significant CMBS demand for conduit and single-asset executions, strong demand for life company and bank financing, continuing demand for longer durations (15 to 20 years and more), increasing prepayment flexibility, growing availability of debt for transitional assets, and significant spread tightening.

The current theme in the equity capital markets, according to an Eastdil study March presented during his panel, shows that the market in general continues to be very active and liquid. Cap rates are stable to falling. Pricing has recovered to 2006 levels or higher for most institutional assets. Unique assets continue to draw capital from around the globe. And pricing doesn’t yet fully reflect the strength of the debt markets. The market continues to achieve cash flow, quality and security needs, but it is putting a reasonable spread between trophy and other Class A assets. While there is still a material spread between primary and tertiary markets and assets, the CMBS market is expected to narrow that gap.

Another recurring theme was the strengthening of REITs relative to the private players. REIT balance sheets are the strongest they have ever been, and their cost of capital is at an all-time low. Massive dedicated and non-dedicated inflows and expansion of ETFs are driving markets. And equity issuance volumes have been high, with $130 billion raised since 2009-2010.

“I believe 2013 will also be a record year for equity issuance, at least in the current cycle,” March added.

In addition, IPOs have been successful, especially in off-the-run property types. Merger-and-acquisition activity is likewise expected to grow this year.

In conclusion, debt markets are strong, while CMBS is setting the pace. Public markets continue to increase. CMBS players are financing deals in major markets first but likely to expand into the rest of the top 30 markets, which will create some compression and relative returns. Property pricing does not yet fully reflect strength of the debt markets, particularly pricing in the non-gateway cities. Economically sensitive pricing is improving, according to Eastdil data, but there are still opportunities in “manufacturing to core.” Activity should continue to increase, with 2006/2007 debt maturities that have been extended coming due in 2013/2014. The study did caution against complacency, given how fast rates can change due to continued European challenges, the Middle East turmoil and job growth issues.

“The country is growing—not as fast as we’d like, but we’re better off than other parts of the world,” said David LaRue, president & CEO of Forest City Enterprises, speaking about the risks and rewards of real estate and the public markets. “The U.S. is a great innovator. Uncertainty is holding us back, (but) that will clear eventually.”

A joint venture of Behringer Harvard and CT Realty Investors has sold the Interchange Business Center, a 667,024-square-foot industrial asset in Southern California’s Inland Empire. The purchase price and identity of the buyer—described as one of the nation’s largest privately held real estate advisors—were not immediately disclosed.

Located at 1420-1440 Third St., in San Bernardino, the three buildings sold by Behringer Harvard and CT Realty are situated on a 34-acre site. Interchange Business Center’s fourth property, a multi-tenant office building, was sold last October.

Behringer Harvard acquired Interchange Business Center in November 2010 through its third joint venture with CT Realty, a real estate investment and development firm based in Aliso Viejo, California.

“When we acquired this asset, we believed that Interchange Business Center represented an attractive opportunity to capitalize on market stress by acquiring Class A industrial space in a recovering market at a significant discount to replacement cost,” Jason Mattox, Behringer Harvard’s COO, told Commercial Property Executive. “We expected this asset to benefit from a strong Inland Empire location and superior quality of construction. We believe this property fulfilled our expectations for upside potential.”

According to Mattox, the partners had completed their value creation strategy for the asset, which focused primarily on improving occupancy, so this was an opportune time to sell the property and redeploy the proceeds.

All told, partnerships of Behringer Harvard and CT Realty Investors have acquired and disposed more than 2.4 million square feet of high-quality industrial space in the Inland Empire.

“The Behringer Harvard REIT that invested in Interchange Business Center pursues an opportunistic investment strategy,” he said. “CT Realty has been an outstanding business partner and we are pleased with the attractive returns achieved by our joint ventures.”  The REIT reaped a 12.7 percent annual average return from the sale of the four buildings at Interchange Business Center.

In a step intended to improve financial reporting and transparency of non-traded REITs, the Investment Program Association on Monday announced the first industry-wide valuation guidelines for the investment vehicles.

Kevin Hogan, president & CEO of the Ellicott City, Md.-based trade group for non-listed direct investment vehicles, said that the new guidelines would promote “a higher level of uniformity, consistency and transparency to the financial reporting” and standardization of valuation approaches by non-listed REIT sponsors. That will enable a variety of stakeholders—investors, investment advisors, broker-dealers and securities analysts alike—to assess and compare the vehicles’ valuation and performance more accurately, Hogan added yesterday in a statement.

“We also believe the improved transparency and standardized valuation reporting arising from this Guideline will give a more compelling picture of the capacity of Non-Listed REITs to deliver attractive investment results, which in turn will enhance public confidence in our industry,” Hogan said.

Two years in the making, the guidelines incorporate input from sponsor firms, broker-dealers, due-diligence professionals and legal, accounting and financial advisors, according to the IPA.

Compared to their publicly traded counterparts, non-traded REITs have sometimes been regarded as lacking transparency and adequate yardsticks, such as up-to-date trading market values and other performance metrics.

Highlights of  IPA’s recommendations include:

•  Uniform methodology derived from GAAP principles for determining share values based on net asset value

•  Protocols for managing valuation  and the involvement of independent valuation experts

*  Introduction of valuations earlier in the life-cycle of each non-listed REIT, and

*  Valuation-related disclosures that exceed U.S. Securities and Exchange Commission requirements

Valuation has often been an issue for non-listed REITs. Scott Crowe, managing director and global portfolio manager at Resource Real Estate Partners Inc., noted in the March edition of CPE that given the difficulty investors have in knowing the value of a non-listed REIT’s assets, “There’s been a big push to have much more regular valuation.”

Only time will tell how quickly or fully the IPA’s guidelines are adopted by non-traded REITs and the extent to which investors expect the standards.

In the meantime, though, Stacy Chitty, managing partner at Blue Vault Partners L.L.C., a research and consulting firm specializing in non-traded REITs, told CPE, “We applaud the IPA for their leading efforts in helping provide a solution to this long-term dilemma.”

]]> http://www.cpexecutive.com/finance/seeking-to-boost-transparency-ipa-issues-standards-for-non-traded-reits/feed/ 0 http://www.cpexecutive.com/regions/southwest/kbs-strategic-opportunity-reit-ropes-in-500-ksf-austin-portfolio/ http://www.cpexecutive.com/regions/southwest/kbs-strategic-opportunity-reit-ropes-in-500-ksf-austin-portfolio/#comments Mon, 08 Apr 2013 15:32:21 +0000 annas http://www.cpexecutive.com/?p=1004070053 By Barbra Murray, Contributing Editor 

KBS Strategic Opportunity REIT has increased its office holdings in Austin to approximately 1.5 million square feet with the acquisition of the Austin Suburban Portfolio, a group of three office properties totaling 518,000 square feet. The REIT purchased the Class A and B assets from TPG/CalSTRS Austin L.L.C., a joint venture involving Thomas Properties Group Inc. and pension fund CalSTRS, for $76 million. 

The change in ownership of Park Centre, Westech 360 and Great Hills Plaza comes just more than six months after TPG/CalSTRS came into possession of the three assets with the $859 million purchase of an eight-property, three million-square-foot office portfolio from a venture consisting of Lehman Brothers Holdings Inc., an offshore sovereign wealth fund and TPG/CalSTRS L.L.C., another joint venture between TPG and CalSTRS. 

KBS financed the acquisition of the unencumbered Austin Suburban Portfolio with proceeds from its initial public offering, which commenced in 2010.

The largest of the assets, Park Centre, is also the newest. Consisting of three buildings, the 203,200-square-foot complex was developed in 2000. Built in 1986, Westech 360 features four structures totaling 175,500 square feet, while the three-story Great Hills Plaza opened its doors in 1985 with 139,300 square feet. 

The portfolio is presently 75 percent leased, which does not reflect the current status of the office market in Austin, where the consistently decreasing vacancy rate dropped to 15 percent at year’s end, according to a report by commercial real estate services firm NAI REOC Austin. However, the properties are positioned to benefit from their location in the city’s improving suburban submarket.

“What’s driving the demand is some of the major relocations that have been announced coming into the area, and the high-tech sector is booming and other industries that utilize office space have really started to take hold,” Bob Rein, associate vice president with NAI REOC Austin, told Commercial Property Executive. “So what’s happening in the CBD is while there are still properties, they’re usually big blocks of office space so smaller users are having a tougher time in the CBD, and that’s forcing them to go north, south, and west to find quality office space.” 

For the Austin Suburban Portfolio, time will tell. The average remaining lease term for the tenants is approximately three years and the current weighted-average annual rental rate for the remaining lease term is $14.01 compared to–according to the NAI report–the $26.53 per square-foot asking rate citywide. “When you have decreasing vacancies, you have rising rents,” Rein said. “Rates haven’t gone up that much but some of the freebies are tightening up a little bit.”

Riverside Center

Hines Global REIT, Inc., has acquired Riverside Center, a 510,000-square-foot, three-building office complex, in the Boston suburb of Newton, Mass., from Equity Office Properties for $197.3 million.

The office property at 275 Grove St. is 97 percent leased on a long-term basis to a diverse group of tenants including the world headquarters of e-publishing company Tech Target and the pharmaceutical giant McKesson Corp.

Hines will manage the property for Hines Global REIT.

This is the third acquisition made by Hines Global REIT in the Boston area in recent years. In 2011, it acquired 250 Royall St. in Canton, Mass., a three-story, 185,171-square-foot building, and the Campus at Marlborough in Marlborough, Mass. , a three-building complex with 532,246 square feet.

“Boston is a market that Hines Global REIT has targeted for investment because of its diverse economy and highly educated workforce,” Sherri Schugart, president and CEO of Hines Global REIT, said in a news release. “Riverside Center is a well-located, quality asset with strong tenancy that will fit well within our portfolio.”

The acquisition was funded with proceeds from Hines Global REIT’s revolving credit facility and proceeds from a bridge loan made by JPMorgan Chase Bank, N.A. It has a maximum borrowing amount of $150 million, according to a filing the REIT made with the U.S. Securities and Exchange Commission.

Completed in 2000, Riverside Center is comprised of three four-story buildings. It has a café, fitness center and parking for 1,500 vehicles. It is adjacent to Riverside Station on MBTA’s Green line and near the Mass Pike/Route 128 interchange. The site is just 15 minutes from downtown Boston and Logan International Airport.

“The Route 128 Central submarket has proven to be one of the strongest suburban office markets in the nation due to its high barriers-to-development and close proximity to downtown Boston and Cambridge, as well as easy access to and from the most affluent communities in the metro area,” David Perry, senior managing director of Hines’ Boston office, said in the release.

The submarket saw average rent of $25.63 at the end of 2012, according to Cassidy Turley’s MarketWATCH Boston fourth-quarter 2012 report. Cassidy Turley noted that the Route 128 Central submarket had a vacancy rate of 12.3 percent, lower than the 15.4 percent overall average for the entire Boston suburban region. With a total inventory of 35,062,173 square feet of office and R&D space in the submarket, about 6.9 million square feet was available at year-end.

Hines Global REIT, is a public, non-listed REIT sponsored by HINEs that owns interests in 30 real estate investments in the United States and abroad. Some of the REITs more recent acquisitions have been in Europe and Australia. Last month, the REIT spent more than $215 million acquiring One Westferry Circus, a nine-story office and retail property in London, and 465 Victoria, a 15-story office building in Sydney’s Chatswood Central Business District. In February, the REIT bought the Mercedes-Benz Bank Building in Stuttgart, Germany, for $69.8 million.

ARCP Chairman & CEO Nicholas Schorsch vs. Cole Holdings Executive Chairman Christopher Cole

The war of words between American Realty Capital Properties and Cole Credit Property Trust III continues to get more heated with each side issuing statements detailing why their proposals about the future of CCPT III are best for stockholders.

The latest volley came this morning with ARCP issuing a six-page press release responding to Thursday’s two-page letter to “valued business partners” that Cole Holdings officials filed with the U.S. Securities and Exchange Commission. In that letter, signed by Christopher H. Cole, executive chairman of Cole Holdings Corp., and Marc Nemer, president and CEO of Cole Holdings Corp., detailed why a Special Committee of their board rejected the unsolicited offer ARCP made Tuesday to buy CCPT III in a cash and stock deal worth up to $9 billion in an effort to create the largest publicly traded net lease sector REIT.

Today, ARCP reiterated its belief that its offer to buy CCPT III is better for stockholders and that the stockholders should have a say in the matter.

“None of Cole’s assertions can disguise the fact that ARCP’s proposal provides CCPT III stockholders with certainty of execution, timing and value in an 80 percent stock, 20 percent cash transaction,” ARCP fired back this morning. “CCPT III stockholders who elect to receive ARCP common stock will have unlimited upside and a floor of $12 per share (cash elections will receive $12 per share). This proposal represents at least a 20 percent premium to the original CCPT III offering price of $10 per share, with no lock-up and immediate liquidity for CCPT III stockholders.”

CCPT III is planning to acquire Cole Holdings Corp., its sponsor and a real estate management firm. In the Thursday letter, Cole and Nemer affirmed that decision and tore into the ARCP proposal. The letter noted that separate from the Special Committee, Cole Holdings also evaluated the ARCP offer and “concluded that the proposal is misleading and was not put forward in an effort to foster serious consideration – to the contrary, the proposal appears to have been made in a manner deliberately designed to disrupt the businesses of Cole Holdings and CCPT III.”

The Cole letter criticized ARCP for making its offer public only 12 hours after sending it to the CCPT III Board of Directors. It also stated that ARCP “attempted to mischaracterize a transformational transaction between CCPT III and Cole Holdings as an‘internalization.’

“The reality is that CCPT III will actually own a profitable, full-scale real estate investment management platform, with more than 350 employees, that currently manages more than 2,000 properties and more than 76 million square feet across 47 states,” the Cole Holdings officials said.

Cole and Nemer stated, “ARCP’s clear distortion of the facts for the purpose of interfering with and disrupting the efforts of their competitors is not surprising. Attempts to purposely create chaos and confusion in the marketplace for personal gain are simply inexcusable as everyone suffers – our broker-dealer clients, our investors and the industry-at-large.”

In today’s press release, ARCP denied that it went public after only giving CCPT III officials 12 hours to consider its offer. ARCP said its management had expressed interest in acquiring CCPT III numerous times over the past two months to Goldman Sachs, CCPT III’s financial advisor, and then directly to the board of directors and management. ARCP stated that no one connected with CCPT III had made an effort to communicate with its management or advisors to “thoroughly review, analyze or negotiate the ARCP proposal in the best interests of the CCPT III stockholders.”

One of the issues in dispute is Cole’s contention that CCPT III’s acquisition of Cole Holdings would be a transformational transaction while ARCP calls it an internalization. In its press release today, ARCP stated: “Cole asserts that its ‘transformational transaction’ (at a cost in excess of $120 million paid by CCPT III stockholders) will result in CCPT III owning a “profitable, full-scale real-estate investment management platform.” ARCP then wrote in bold print, “This is, in fact, the very definition of an internalization.”

ARCP went on to detail what it estimates CCPT III would receive upon a successful listing, stating it would be about $258 million, plus an “undeterminable earn out,” adding it would be a “transformational transaction” for Cole but not for its stockholders.

In its Thursday letter attacking the ARCP proposal, Cole and Nemer said ARCP omitted key facts, including that it’s privately owned external manager would be a primary beneficiary of the proposal. The two men stated reliance on an external management structure “is viewed unfavorably by the institutional public markets.” They claimed the ARCP external management team “has a mixed track record and no history with approximately 75 percent of the combined portfolio.”

The ARCP statement today addressed that assertion by saying there are successful examples of externally managed public companies, including REITs. ARCP pointed to its launch of a $70 million IPO as an externally managed REIT in September 2011 and added that it raised $134 million in follow-on and preferred offerings and executed a $3.1 billion merger.

The REIT went on to say that institutional markets have “embraced ARCP’s low-cost, external management structure, where acquisition and financing fees have been eliminated and asset management fees were structured to remain significantly below industry averages.”

ARCP added that the board of directors has the option to internalize management any time if there is a stockholder benefit.

Cole had listed several other reasons for rejecting the ARCP proposal including:

•    CCPT III has a “superior asset portfolio” and combing the two portfolios would be dilutive to CCPT III;
•    ARCP’s proposed exchange ration undervalued CCPT III in an approach that “defies financial logic;”
•    The cash component of the ARCP proposal would result from leveraging the CCPT III balance sheet,   eventually leading to future dilution to the CCPPT III stockholders.

In today’s response, ARCP attacked those reasons point by point. It defended its “best-in-class” portfolio, noting it comprised 692 properties with 16.4 million square feet worth about $3.1 billion as of Feb. 28. ARCP said 79 percent of its 49 tenants were investment grade and that it was located in 44 states and Puerto Rico. Average remaining lease term is 11.5 years.

ARCP said it was offering a minimum 20 percent premium potential upside to the original CCPT III offering price of $10 per share. The REIT said the only thing that “defies financial logic” is the refusal by all the CCPT III parties to consider ARCP’s offer.

ARCP said it is one of the lowest leveraged REITs in the net lease sector. It also added its proposal would be fully funded and immediately available under ARCP’s existing credit facility which was recently expanded.

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22535 Colonial Pkwy, Houston

Chambers Street Properties has acquired the remaining interests in 17 properties it owned in a joint venture with Duke Realty Corp., for a reported $98.6 million as Duke continues to divest many of its office holdings to focus more on industrial assets.

The price paid was Duke’s 20 percent of the portfolio estimated at $493 million, according to the Triangle Business Journal in Raleigh, N.C. The portfolio consisted of 16 office properties and one industrial asset – Goodyear Crossing Industrial Park II, an 820,000-square-foot warehouse and distribution facility in Phoenix.

“This is a mutually agreeable transaction which has conveyed full ownership and control of 17 high quality commercial properties in markets where Chambers Street currently operates,” Philip L. Kianka, executive vice president and COO of Chambers Street, said in a company release.

The office properties are: The Landings I and II and McAuley Place, three buildings with a total of 542,000 square feet in Cincinnati; Atrium I and Easton III with a total of 451,000 square feet in Columbus; Point West I, a 183,000-square-foot property in Dallas; Miramar I and II, with a total of 223,000 square feet in Fort Lauderdale, Fla.; 22535 Colonial Parkway, a 90,000-square-foot building in Houston; Norman Pointe I and II, totaling 537,000 square feet in Minneapolis; Celebration Office Center and Northpoint III, totaling 209,000 square feet in Orlando, Fla.; and 1400 Perimeter Park Drive, 3900 N. Paramount Parkway and 3900 S. Paramount Parkway, totaling 265,000 square feet in Raleigh.

“The transaction is in keeping with our fundamental investment strategy while still allowing us to continue with our successful relationship with Duke Realty on the remaining assets held by the JV,” Kianka added.

Chambers Street, formerly known as CB Richards Ellis Realty Trust, is a Maryland-based REIT with its headquarters in Princeton, N.J. The REIT continues to have joint ventures with Duke in approximately 20 properties, most of them office but a few warehouse and distribution facilities including Buckeye Logistics Center in Phoenix and Fairfield Distribution Center IX in Tampa, Fla. The joint venture partnership between the two REITs began in 2008 and most of the JV properties were acquired between 2008 and 2011, according to a portfolio list on the Chambers Street website. Of the remaining JV properties, Chambers Street owns 80 percent and Duke owns 20 percent.

Duke, an Indianapolis-based REIT, has stated its long-term goal is to have 60 percent of its holdings in industrial, 25 percent in office and 15 percent in medical office holdings. As of Dec. 31, 2012, Duke’s portfolio, based on gross investment dollars, was 51 percent industrial, 29 percent office, 16 percent medical office and 4 percent retail, according to its 2012 fourth-quarter and full year filing with the U.S. Securities and Exchange Commission. The filing also noted that based on net operating income, Duke’s portfolio mix was 54 percent industrial, 30 percent office, 13 percent medical office and 3 percent retail at the end of last year. It currently owns and operates more than 145.6 million rentable square feet of industrial and office space in 18 U.S. cities and regions, including Atlanta, Baltimore, Chicago, Dallas, Houston, and southern Florida and southern California.

Chambers Street focuses on acquiring and managing high-quality corporate real estate with long-term leases in the United States, Europe and the United Kingdom. It currently has a portfolio of 129 properties in more than 40 markets. Most are in the U.S. with six in Germany and seven in the U.K. It also has an investment with institutional partners that includes interest in eight properties in China and Japan. The REIT’s most recent acquisitions have been in the U.S., including the purchase last month of two office buildings near Philadelphia that it had developed in 2012 with Trammel Crow. The two five-story, Class A buildings are located in Malvern, Pa., and have a total of 300,000 square feet.

From left: Stéphane Pinchon, managing partner, Your Care Consult, Mel Gamzon, president, Senior Housing Global Advisors; Guillaume Truong, head of investments – healthcare real estate, GECINA; Bromme Cole, president, Hampton Hoerter China

By Eliza Theiss, Associate Editor

With social, economical and demographic shifts occurring all around the world, the question of healthcare and elderly care is becoming more and more of an issue as well as an investment opportunity. And with the unavoidability of aging and necessity of healthcare there is a massive opportunity for growth and expansion for the real estate industry, as well as significant risks. To address the issue, MIPIM 2013’s brought together specialists from three of the largest markets: the United States, China and Europe.

“Nearly nine percent of the world’s GDP is spent on healthcare,” observed  Pichon Stéphane, managing partner for Your Care Consult and the panel’s moderator.  That 8.8 percent, however,  is very much an average. Healthcare spending varies greatly across the globe; North America unsurprisingly leads the list, with 14.5 percent of its GDP going toward healthcare expenditures, Europe’s more prosperous West and North regions spend around 10 percent, the Middle East spends 5.1 percent and Asia spends 7.3 percent.  Whatever the region and  spending pattern, though, the healthcare industry offers growth potential worldwide.

China’s one-child policy, for example, has created the 4-2-1 family structure: four grandparents, two parents, one child. That translates into one caretaker per six people, which puts significant strain on the youngest generation. While the one-child policy has drastically reduced births and artificially created an elderly demographic that is set to soon outnumber the entire population of the U.S., the continuous economic growth has  shaped the young generation into a mindset very similar to their Western counterparts. In a nutshell, young people don’t want children.  And if they do, they delay starting a family.

This impacts the senior housing industry heavily in China. Even though Chinese social conventions hold children responsible for their elders’ care, the young middle class today either cannot take charge of their elders or prefers not to. Bromme Cole, president of Hampton Hoerter China, sees this as an opportunity, since with shifting values, taking care of elders can also start to mean housing them in high-end senior living facilities. These properties are designed for this specific purpose, by developers that have the know-how, rather than players that were forced out of the general multifamily industry. The potential for growth in China is vast, assuming the government refrains from imposing harmful, non-market oriented policies. Cole also predicts that prospects for “value-add” or distressed acquisitions will likely dominate China’s senior living landscape.

And while the senior housing industry is in its infancy in China, the U.S. senior housing industry has grown to a $275 billion business in the past 30 years and is expected to keep growing.  Between 2025 and 2030 the current yearly growth of 18,000 new senior housing units could skyrocket to 77,000 and 82,000 annually.

The senior industry was put on the map by specialized health care REITs that now  occupy three of the top ten REIT slots in the U.S. Furthermore, said Mel Gamzon, president of Senior Housing Global Advisors, during “the five recession years, senior (housing) outperformed all other markets.“ He also predicted that value-add properties are the next logical target for investors because the supply of available Class A senior living assets is running out. Gamzon also emphasizes the necessity of creating mixed-use, inter-generational projects, so as not to cut off the elderly population from the rest of the community, as well as creating independent living communities where residents can focus on preventive health, fitness and wellness.

Christopher Cole, of Cole Holdings

Cole Credit Property Trust III Inc. has executed a definitive merger agreement to acquire Cole Holdings Corp., a real estate investment management firm that currently manages more than $12 billion of real estate assets, the trust announced Wednesday. Both companies are based in Phoenix. On completion of the merger, CCPT III, one of the largest REITs focused on the net lease CRE sector, will change its name to Cole Real Estate Investments Inc.

The purchaser will pay $20 million in cash (subject to adjustment) up front and about 10.7 million shares of CCPT III common stock, along with various further, contingent amounts of stock. The transaction is expected to close in the second quarter, subject to the usual conditions and approvals.

The announcement emphasized that Cole Real Estate Investments Inc. will seek a listing on the NYSE and that once that’s attained, the REIT “will be well positioned to achieve inclusion in a variety of indices … such as the Russell 1000, Russell Midcap and MSCI U.S. REIT Indices.” In addition, following an NYSE listing, the merged company would be the second-largest publicly traded REIT in the net-lease sector.

Given the sometimes problematic nature of selling such a large REIT, and the difficulty of driving growth in a REIT as focused on income as CCPT III, it’s plausible to assume that seeking an NYSE listing is a sound strategy at this point, leading to greater access to capital, an improved credit rating and lower borrowing costs. 

More immediately, the acquisition of Cole Holdings gives CCPT III a proven management team and a full-scale real estate investment management platform with more than 350 employees, as well as a portfolio of more than 2,000 properties with more than76 million square feet of corporate real estate under management. It’s expected to be immediately accretive to CCPT III’s funds from operations and to support an increase in the company’s annualized dividend rate to $0.70 per share on closing.

“For over a decade, a primary strategy in the asset management industry has been the creation of large, full-service firms with the scale and resources necessary to compete effectively in a changing environment,” Christopher Cole, executive chairman of Cole Holdings, said in a press release. “The real estate industry has been lagging behind in terms of the creation of full-service asset managers that can provide a comprehensive suite of products and services to distribution partners. Through this compelling combination, we have the opportunity to realize the vision of creating a world-class real estate platform and providing investors the benefits of owning high-quality, income-producing real estate leased long term to credit-worthy corporations.”

Cole founded Cole Holdings in 1979, after which the company eventually began creating a series of non-traded REITs focused on a high-income, low-volatility approach. Each REIT was externally managed by Cole Holdings. CCPT III was formed in 2008 and began operations in 2009, ultimately raising about $4 billion of capital.

In one noteworthy pair of transactions, CCPT III bought the 583,000-square-foot headquarters of Microsoft’s Bing division, in Bellevue, Wash., for $310 million in July 2010, then sold it about two years later for $375 million.

In related news, CPE reported on Jan. 23 that the boards of Cole Credit Property Trust II Inc. and Spirit Realty Capital, of Scottsdale, Ariz., had approved the companies’ merger into an entity that will be the second-largest publicly traded net-lease REIT, with a pro forma enterprise value of about $7.1 billion. (That distinction, in light of the CCPT III announcement, will presumably be short-lived.) The new company, to be named Spirit Realty, will have a portfolio of commercial and retail assets totaling just over 2,000 properties nationwide.

Last year, Essex Property Trust Inc. made more than $800 million in multi-family acquisitions in California and the Seattle area. The REIT is continuing its spending this year, picking up Fox Plaza, a 444-unit property in San Francisco’s Mid-Market district for $135 million from Archstone.

The sale is considered the largest multi-family transaction in the Bay Area in recent years. The 29-story tower has apartments on floors 14 through 29. Commercial office space on floors 1 through 12 were not included in the purchase price, but the sale did include an adjacent two-story building with 37,800 square feet of space that could eventually be developed as a 250-unit, 11-story apartment community. It is currently leased to retail and office tenants and includes a two-story underground parking garage with 405 spaces.

Essex, a Palo Alto, Calif.-based REIT that acquires, develops, redevelops and manages apartment communities, said in a news release that it does not have immediate plans to develop the adjacent site. It does plan to spend $27 million over the next several years to renovate the exterior and interior of the apartment community. About 75 percent of the apartments are studios and the remainder are one- and two- bedroom units.

Built in the 1960s, the prperty is located at 1390 Market St., an area that has recently seen a real estate boom. Essex noted that the Mid-Market district is transforming, particularly with more than 1 million square feet of office space leased to tenants like Twitter and Dolby Laboratories. Cassidy Turley, one of the firms that marketed the property, said in a release that Archstone wanted to take advantage of the hot market. It bought the entire tower in 2005 for $147.5 million. In 2007, it sold the 232,000-square-foot portion of the property that contained offices and retail to Broadreach Capital for $42.7 million, according to Cassidy Turley.

The deal was marketed by David Orozco, formerly with Colliers International and now an agent at Cassidy Turley, and Frank Wheeler of Colliers International. Commercial Property Executive reported in October that Colliers International had been hired by Archstone to sell the property. At that time, it was expected to sell for about $150 million.

Archstone will soon be part of an even bigger deal. Equity Residential and AvalonBay entered into an agreement in November to acquire Archstone from Lehman Brothers Inc. for approximately $16 billion. The sale is expected to close this quarter.

Essex has been particularly busy in the last year. It ended 2012 with $802 million in acquisitions, including $450 million made in the fourth quarter. One of its largest investments in late 2012 was the acquisition of Willow Lake Apartments, a 508-unit apartment community in San Jose, Calif., for $148 million. In January, the REIT added to its Seattle holdings with the purchase of Annaliese, a 56-unit community in the hot South Lake Union submarket of Seattle, for $19 million. Essex President and CEO Michael J. Schall said in the company’s recent year-end filing to the U.S. Securities and Exchange Commission that he expected 2013 to be “another outstanding year for the company.”

SL Green Realty Corp. has done it again. New York City’s largest office landlord has refinanced its 1.8 million-square-foot office building at 1515 Broadway to the tune of $900 million. The 12-year first mortgage refinancing comes less than a year after SL Green completed a $775 million, seven-year refinancing deal for the fully leased high-rise.

The new loan,  featuring a fixed rate of 3.93 percent, not only allows SL Green to replace the previous loan, but it gives the REIT a little extra pocket change–$116 million in net proceeds, to be exact. The 54-story tower in Times Square has been part of the SL Green portfolio since 2002, when the company joined forces with Canada’s SITQ Immobilier to purchase the asset for $480 million. The partners later submitted the property to a $40 million repositioning program.

It’s been a busy few years at 1515 Broadway. In 2011, SL Green became sole owner of the asset when it acquired SITQ’s ownership stake in a transaction that valued the consolidated interests at $1.2 billion. In spring 2012, lead tenant Viacom Inc. decided to stay put and increase its elbowroom in a 1.6 million-square-foot lease agreement with a 20-year term.

It has the quality, the location, the tenancy–there is every reason for lenders to be attracted to 1515 Broadway. The sponsorship is nothing to sneeze at either. “The very smart management team takes advantage of the REIT corporate structure to run an opportunity fund in Manhattan,” John W. Guinee III, managing director with investment banking firm Stifel Nicolaus, told Commercial Property Executive. “The reasons we like SL Green are their leasing price point is attractive at $45 to $65, which is acceptable to the growing tenants in Manhattan such as technology, entertainment, new media and publishing tenants. Plus, when you buy stock you’re buying the Manhattan-only office portfolio valued at just over $600 per square-foot, which is a very attractive valuation relative to our estimates of replacement cost.”

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Kohlberg Kravis Roberts & Co. L.P. is providing $150 million of equity to Sentio Healthcare Properties, Inc., a REIT that invests in senior housing and medical facilities, to help it grow its portfolio.

Both firms said an affiliate of global investment firm KKR will invest with Sentio’s current shareholders in the Orlando, Fla.-based REIT over the next two to three years. The proceeds will be used for acquisitions. KKR is Sentio’s largest equity partner to date.

“We are very excited to have an industry leader like KKR as a long-term partner who can help us access new opportunities through its vast network of relationships,” John Mark Ramsey, Sentio president and CEO, said in a prepared statement. “We believe KKR’s financial commitment and real estate and capital markets capabilities will complement Sentio’s industry expertise to help us drive meaningful shareholder value in the coming years.”

Founded in 2006, Sentio owns 20 health-care related assets in at least 10 states. Fifteen are senior housing, including independent living, assisted living and skilled nursing facilities. The remaining breakdown is two medical offices – Physicians Centre in Bryan, Texas, and Hedgcoxe Health Plaza, in Plano, Texas – and three specialty medical facilities such as in-patient rehabilitation and long-term acute care hospitals. Some of the assets are triple-net leased properties.

The REIT’s most recent acquisition occurred in September, when Sentio acquired a portfolio with four assisted living facilities for $49 million in a joint venture with JEA Senior Living. The portfolio had a total of 130,800 square feet, 264 beds and 152 units. All of the facilities are for residents with Alzheimer’s’ or other memory ailments. Three of the four properties are in Illinois – Springfield, Urbana and Normal – the remaining site is in Bryan, Texas.

Sentio currently owns assets in Texas, Florida, Indiana, South Carolina, Tennessee, Ohio, Pennsylvania, New Hampshire, Illinois, Georgia and Colorado but is looking to expand to other states and regions.

This is not KKR’s first investment in the senior housing sector. In September, the global investment firm agreed to team up with Beecken Petty O’Keefe & Co. and Coastwood Senior Housing Partners to purchase Sunrise Senior Living’s management company component for $130 million.  The management company has contracts covering 282 communities, leasehold interests in 15 communities and 12 development parcels, according to a September KKR press release. The acquisition is expected to close this quarter.

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RioCan Real Estate Investment Trust has entered into a conditional agreement with Primaris Retail REIT to acquire two regional shopping malls in the Greater Toronto Area (GTA) for a combined gross purchase price of approximately $362 million.

RioCan intends to acquire a 50 percent interest in Burlington Mall in Burlington, Ontario and a 100 percent interest in Oakville Place in Oakville, Ontario. The transaction is conditional on the successful completion of the H&R REIT and KingSett Consortium acquisition of Primaris. On closing, which is expected to occur in April, RioCan will acquire the assets as part of the KingSett Capital led Consortium.

RioCan will assume, at its interest, the in-place first mortgage financing of approximately $165 million in aggregate. At the time of the acquisition, the purchase price will be reduced by a mark-to-market adjustment in consideration of the debt’s above market interest rate, currently estimated at approximately $8 million.

With the addition of Oakville Place and Burlington Mall, Canada’s largest real estate investment trust will gain an even stronger foothold in the enclosed mall sector of the GTA. RioCan’s other properties in the region include Georgian Mall, RioCan Yonge Eglinton Centre, RioCan Sheppard Centre and Shoppers World Brampton.

“This acquisition represents an excellent opportunity to acquire two prominent regional malls, in communities with excellent demographics, high barriers to entry, and great potential to create additional value for our unit holders. We look forward to working with KingSett, our partners, who have done an excellent job in bringing this transaction into reality,” said Edward Sonshine, CEO of RioCan. “These two properties strengthen RioCan’s portfolio of enclosed malls, and will reinforce our competitive position in the GTA, Canada’s largest market. RioCan’s expanding enclosed mall portfolio with its strong fashion component will further support RioCan’s relationships with its growing North American tenant base. RioCan is uniquely positioned to offer our tenants the opportunity to locate within multiple locations and retail formats.”

Oakville Place (pictured) is a fashion focused, two-level regional mall strategically located in one of Canada’s most affluent, high-income communities. Built in 1981, the property offers approximately 455,000 square feet of gross leasable area. Significant renovations occurred in 2004 and 2008. Anchored by The Bay and Sears, the mall is now fully leased and its tenants include American Eagle, H&M, Jacob, Birks, Roots, Laura, Mexx and Shoppers Drug Mart. On September 30, 2012, the property’s Commercial Retail Units (CRU) generated average sales of approximately $493 per square foot.

RioCan will purchase a 100 percent interest in Oakville Place for $259 million. In connection with the purchase, RioCan will assume the in-place first mortgage financing of $112 million, which carries an interest rate of 4.7 percent, maturing in 2021.

Burlington Mall is a 782,000 square-foot enclosed shopping center located near the Queen Elizabeth Way at Guelph Line and Fairview Street. Built in 1968, the property has undergone significant renovations in 2001, 2004 and 2006. Anchored by Target (opening this spring), Canadian Tire and Winners/HomeSense, the mall is 99 percent occupied and includes The Bay, Dollarama, Old Navy, Shoppers Drug Mart and SportChek among its tenants. On September 30, 2012, the property’s CRU generated average sales of approximately $386 per square foot.

RioCan will own the mall on a 50/50 joint venture basis with the KingSett Canadian Real Estate Investment Fund. At 100 percent, the price of the property is $206 million ($103 million at RioCan’s interest). The parties will assume the in place first mortgage financing of $105 million ($52.5 million at RioCan’s interest) which carries an interest rate of 3.8 percent, maturing in 2016.

Blackstone Group L.P. is on the verge of snapping up a majority interest in 40 high-quality shopping centers. UBS, which co-owns the collection of U.S. retail properties with Kimco Realty Corp., will sell its controlling interest to Blackstone for $1.1 billion. Kimco disclosed the information during its fourth quarter earnings call on February 6 and Bloomberg was the first to report it the following day.

“During the quarter, Blackstone signed a definitive agreement with UBS Wealth Management North American Property Fund to purchase their equity interest in two large Kimco-managed UBS retail joint ventures, encompassing 40 high-quality shopping centers containing approximately 5.6 million square feet,” David B. Henry, Kimco president and CEO, said during the call.”

Kimco, which owns and operates the largest portfolio of neighborhood and community shopping centers in North America, is also getting a bigger piece of the pie. Per a preliminary agreement with Blackstone, the REIT will boost its ownership stake in the high-quality portfolio from 18 percent to 33 percent.

Additionally, as per the agreement, Kimco will stay on board as manager and leasing services provider for the properties. The REIT is keen on its new partner in the portfolio. “We have a great working relationship with [Blackstone],” Henry said during the call. “As you may remember, they purchased our Valad note, and we did work with them on the original Centro transaction so we have a good working relationship with them.”

A Blackstone spokesperson declined to comment on the deal.

The retail real estate market is a nice business to be in these days. Perhaps it has not caught up to multi-family in terms of being the favorite sector among investors, but it is certainly quite high on the radar. “The retail market clearly has continued to improve on an operating fundamental basis,” David Bujnicki, a spokesperson with Kimco, told Commercial Property Executive, basing his comments on numbers from the fourth quarter results Kimco reported this week. “Kimco and many of the strip-sector peers continue to report increasing occupancy, same-site NOI and leasing spreads, which is driven in part by the fact that there has been no new retail development in the marketplace, with national retailers continuing to look to increase their store counts.”

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KBS Real Estate Investment Trust III has acquired the RBC Plaza, a 678,045-square-foot, mixed-use office building in downtown Minneapolis from Brookfield Office Properties for $118.1 million.

The Newport Beach, Calif.-based REIT plans to turn between 50,000 and 60,000 square feet of the existing retail space at the 40-story Class A tower into offices. The property, which is currently 83 percent leased to 34 tenants, has 609,368 square feet of office space and 68,677 square feet of retail space above an underground parking garage. The current average weighted lease is 6.9 years and the tenants are paying a total of $8.6 million a year in rent or about $16.08 per square foot, according to a KBS filing with the U.S. Securities and Exchange Commission.

Built in 1991, the mixed-use property is located in Minneapolis’s financial district along Nicollet Mall, a popular downtown shopping area and connected via the city’s Skyway to a multi-building retail complex that occupies two city blocks. KBS plans to renovate the third and fourth floor of what is currently the Graviidae Common II into office space.

The REIT also plans to upgrade the office amenities, conference rooms, fitness facility and to renovate the lobby, Rodney Richerson, KBS regional president, said in a prepared statement. In all, the planned renovations are expected to cost around $3.8 million.

“Brookfield, the seller, has done a wonderful job of running the asset, however the pending closing of one of the anchor retailers provides an exciting opportunity to rethink the four-story retail section of this project,” Richerson said in the release.

Giovanni Cordoves, vice president of asset management at KBS Capital Advisors, told Commercial Property Executive that the plan is to create a large block of open office on the third and fourth floors of the retail portion of the project.

“Although it could be built out as a more traditional office space and multi-tenant, it will likely attract large open floor plan users who are looking for a unique urban setting, with more visibility and exposure than your typical office space,” he said. “The proximity to the streetscape coupled with a Nicollet Mall address, provides an urban vibrancy at what should be a very competitive rental rate. Based on our market research, we anticipate that this 50,000- to 60,000 square feet will be the largest available contiguous block of office space on Nicollet Mall.”

Cordoves added that the goal for future retail tenants is “to create a tenant mix that caters to the office tenants of RBC Plaza and the general downtown office population.” He said the plan would include fast casual restaurants, white tablecloth dining and service retail offerings.

Cordoves is the REIT’s advisor who will oversee management of the property. KBS has hired Cushman & Wakefield/Northmarq to manage and lease the asset. Sonja Dusil will be in charge of leasing and Theresa Elveru will lead the property management team.

Brookfield was represented in the deal by Tom O’Brian and Terry Kingston of Cushman & Wakefield/Northmarq and Mike Winn and Tom Richey of Cushman & Wakefield/Denver.

Late last year, Brookfield sold another of its Minneapolis assets – the Minneapolis City Center at 33 South 6^th Street – to Shorenstein Properties L.LC. for $202.5 million. The 50-story mixed-use complex is located near the RBC Plaza. It occupies a block bounded by Nicollet Mall, Hennepin Avenue and 6^th and 7^th streets. That 1.6 million-square-foot property also contained four stories of retail along with 1.1 million square feet of Class A office space. Brookfield stated in a Nov. 20, 2012, news release that it had netted approximately $106 million in the sale of the non-core asset. Brookfield, based in Toronto, has been focusing most of its efforts on New York City, Washington, D.C., Houston, Los Angeles, Denver, Boston and Seattle.

Companies affiliated with KBS already own two other properties in the greater Minneapolis area: the 288,458-square-foot Tower at Carlson in Minnetonka, Minn., and Watertower Apartments, a 228-unit, mixed-use apartment community in Eden Prairie, Minn.

For KBS REIT II, its plan to convert part of the RBC Plaza’s retail area into Class A office space is probably a wise move. The Twin Cities office market, which includes St. Paul, Minn., is “in the best shape since 2007,” according to a report in the January edition of The Compass published by Cushman & Wakefield/Northmarq. The report notes that the office market posted nearly 1 million square feet of positive absorption in 2012 and “is poised for accelerated growth in 2013.” With an overall vacancy of 9.7 percent for Class A office space and “few options for large space users” in the Minneapolis CBD last year, the CRE services firm expects rents to rise this year.

Phillips Edison-ARC Shopping Center REIT Inc. has started the new year where it left off in 2012 – with another acquisition. The new purchase is a portfolio of six grocery-anchored shopping centers in the Atlanta area which the Cincinnati-based REIT acquired for $60.5 million.

The seller was not identified. The shopping centers have a total of 507, 668 square feet and are comprised of five properties anchored by Kroger grocery stores and one anchored by a Publix.

“We are extremely pleased to have closed this portfolio in the Greater Atlanta Metro area,” Jeffrey Edison, co-chairman of the board and CEO of the REIT, said in a statement. “We believe in the strength of the grocery-anchored shopping center model and feel that these acquisitions further enhance the strength of our portfolio by adding strong, credit-worthy tenants such as Kroger and Publix.”

A public, non-traded REIT that focuses on the acquisition and management of well-occupied grocery-anchored neighborhood shopping centers in the United States, Phillips Edison-ARC now owns directly or jointly 32 centers totaling almost 3 million square feet. With the Atlanta area purchases this month, the REIT’s portfolio has an aggregate purchase price of approximately $367.5 million and features 13 leading grocers in 15 states.

The REIT is co-sponsored by Phillips Edison & Company, which has acquired over $1.8 billion in shopping centers in the U.S., and AR Capital, L.L.C., a real estate investment program sponsor. It was particularly active in 2012, executing deals until the last week of December, when it acquired three more shopping centers for about $55.5 million. Those purchases gave the company its first Trader Joe’s, Vons and Raley’s grocery stores and the first acquisitions in Oregon and California. The acquisition was comprised of Quartz Hill Towne Centre, an 110,306 square-foot center in Lancaster, Calif.; Village One Plaza, a 105,658-square-foot center in Modesto, Calif., and Hilfiker Square, a 38,558-square-foot center in Salem, Ore.

In early December, the REIT’s CEO commented on its “robust acquisition activity” as 2012 wound down and looked ahead to 2013.

“We are excited about our recent acquisitions and the construction of our portfolio since the formation of the PE-ARC,” Edison noted in the Dec. 5 statement. “With our pipeline of $221.0 million of possible acquisitions, we believe that we are taking advantage of the tremendous opportunities in the market and we foresee a favorable 2013. We believe that our strategy in the necessity-based grocery-anchored shopping center market space has allowed us to find acquisitions with favorable capitalization rates and we expect to continue to do so with our strong pipeline.”

Last week, the REIT announced that it had increased the borrowing capacity of its senior secured revolving credit line with KeyBank from $40 million to $88 million. The loan facility allows the REIT to further increase the borrowing capacity up to $250 million. The expansion of the credit line came less than a month after Phillips-Edison ARC secured the $40 million credit facility.

“As we continue to see attractive acquisition opportunities in the marketplace for well-occupied grocery-anchored shopping centers, this credit facility will assist us in building our portfolio by streamlining the process of obtaining financing  and increasing the efficiency of closing,” Edison said in the Jan. 18 statement about the larger credit line.

There are advantages to being one of the big kids on the block and Spirit Realty Capital and Cole Credit Property Trust II Inc. are about to join forces to become part of the higher echelon of publicly traded net-lease REITs. The boards of directors of both companies have just approved a merger that will create an entity that will be the second largest publicly traded net-lease REIT, with a pro forma enterprise value of approximately $7.1 billion.

In commercial real estate, bigger is usually better, as size offers a multitude of advantages. “This merger significantly accelerates the major objectives of our business strategy, including to grow the portfolio, diversify our tenant concentration and reduce our leverage, Thomas H. Nolan, Jr., chairman and CEO of Spirit Realty, told Commercial Property Executive.“The Cole Credit Property Trust II portfolio fits well with our focus on single-tenant, triple-net-lease, operationally essential properties.” Together the new company, which will carry the name of Spirit Realty, will boast a collection of commercial and retail assets encompassing 2,012 properties with a presence in 48 states. Presently, the portfolio’s tenants occupy space under lease agreements with a weighted average term of 10.6 years.

The immediate monetary benefits are not too shabby. “We believe our combination with Cole Credit Property Trust II will enable us to continue to generate attractive, predictable cash flow and provide an attractive and sustainable dividend for shareholders,” added Nolan, who, along with the current Spirit Realty management team, will lead the merged company.

The list of pluses is simple but significant and goes well beyond size and scale and increased income. In addition, it will allow for an increase in operating efficiencies, but that’s not the end of it. “Our combined portfolio also will focus on rated and non-rated as well as investment grade and sub-investment grade tenants–a broader credit profile than our current one that we believe will benefit our investment program and our shareholders,” said Nolan.

And the list goes on. “We think that becoming the second largest publicly traded triple-net-lease company will provide us with improved access to the capital markets, which should afford us greater potential opportunities for value creation,” he concluded.

And it will all happen in one fell swoop should everything–including the final approvals by the usual suspects–fall into place as planned. The all-share merger is on track to close in the third quarter of 2013, based on Spirit Realty’s closing price of $17.82 per share on January 18, 2013, thereby providing for an exchange ratio value of $9.36 per CCPT II share.

Among the publicly traded net-lease REITs, Spirit Realty will be second only to one: the company that will be formed when Realty Income Corp. completes the acquisition of American Realty Capital Trust. Earlier this month, the companies’ shareholders gave the green light for the deal, which will result in a REIT with an enterprise value of approximately $12.4 billion and an equity market capitalization of roughly $8.4 billion.

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By Gail Kalinoski, Contributing Editor

Wells Core Office Income REIT has acquired 64 and 66 Perimeter Center East, a two-building office and data center in the Central Perimeter submarket of Atlanta from Rubenstein Partners for $118.5 million, in the city’s biggest lease deal of 2012.

Norcross,Ga.-based Wells Core REIT paid for the acquisition with proceeds from its $200 million unsecured revolving credit facility and its ongoing public offering, according to an 8-K form filed with the U.S. Securities and Exchange Commission.

The 584,000-square-foot property, owned by Philadelphia-based Rubenstein Partners since 2007, recently had about $34 million in renovations, including adding a fitness center and dining area.  Located on a 17.4 acre site in the Atlanta area’s largest Class A office submarket, it consists of a 15-story, 381,432-square-foot office tower built in 1985 and an eight-story, 199,000-square-foot office building constructed in 1971. The site is close to the main highways – Georgia 400 and Interstates 285 and 85 – as well as public transportation, hotels, restaurants and retail centers.

The property is 96 percent leased thanks mainly to State Farm Mutual Automobile Insurance Co., which in June agreed to take a total of 434,513 square feet between the two buildings to open a customer service center. The lease, which will bring at least 500 jobs to the area, was by far the Atlanta market’s largest lease deal of the year, according to Jonathan Majors, regional market research analyst with Transwestern.

Majors also told Commercial Property Executive that the property sale, which closed Dec. 28, was the third largest office property transaction of 2012.

Wells was represented internally by Peter Mitchell, senior vice president, capital markets.

“We are pleased to add an Atlanta asset to the Core portfolio,” Patti Morris, chief real estate officer of Wells Real Estate Funds, said in a statement. “64 and 66 Perimeter Center East is a well-known property occupied by a well-known Fortune 500 tenant.”

State Farm began a phased move on Dec. 1, according to the 8-K. By the time the insurance giant completes its move into all its space in August, it will occupy about 86 percent of the property. State Farm’s lease expires in December 2023, but it has the right to extend the term of its lease for three additional five-year renewal periods at 95 percent of the then-current market rate. The insurance firm also has an ongoing right of first refusal and first offer to lease additional space in 66 Perimeter Center East, where it is currently leasing 107,814 square feet. It has agreed to take 326,699 square feet at 64 Perimeter Center East.

The Central Perimeter showed the most improvement in net absorption of all the Atlanta submarkets in 2012, filling more than 1 million square feet of surplus office space, according to the Transwestern Office Market Trends Fourth Quarter 2012 report. It also led in leasing activity with more than 2.5 million square feet of leases signed.

Office rents are improving, although the overall rates of $19.64 per square foot is well below the 2008 rate of $21.38, according to the Transwestern report.

Majors said sales volume is gradually picking up from 2009, when it had bottomed out. The report noted that 86 office buildings traded hands in 2012 for more than $1.2 billion at an average of $125 per foot.

“The market is going to continue to improve,” he told CPE. “Continued job growth is expected slightly in 2013 and more rapidly in 2014.”

A Cushman & Wakefield third-quarter 2012 Marketbeat Office Snapshot report pointed to the region’s unemployment rate, which is slowly dropping, and an increasing number of corporate consolidations from outside the market that are expected to benefit the region.

“Together, this should translate into continued momentum within Atlanta’s office market in the coming quarters,” the Cushman & Wakefield report stated. “As investors continue to increasingly target Atlanta, the investment sales pipeline is expected to remain very active.”

Physician’s Office Pavilion at WakeMed North, Raleigh, N.C.

The Griffin-American Healthcare REIT II Inc. more than tripled its portfolio in 2012 with acquisitions totaling $866 million, including 14 properties purchased in December for $183.6 million. Those acquisitions plus purchases made earlier in December pushed the REIT’s holdings to 139 properties in 27 states acquired for about $1.325 billion.

“It may be an understatement to say that 2012 was a record year on many levels for Griffin-American Healthcare REIT II,” said Danny Prosky, a principal of American Healthcare Investors and president & CEO of the REIT. “Our portfolio of medical office buildings, hospitals, skilled nursing facilities and assisted living facilities more than tripled during the past year, based on purchase price, and became even more broadly diversified in terms of geography, asset type and revenue sources.”

In its most recent acquisitions,  the Newport Beach, Calif.,-REIT acquired nine medical offices and five assisted living facilities located in California, Florida, North Carolina, Indiana and Alabama for $183.6 million.  Earlier in December, the REIT bought a Houston medical center and a three-building portfolio of senior care facilities in Massachusetts for a total of $47.6 million.

The REIT’s portfolio is comprised of 33.4 percent skilled nursing facilities, 48.5 percent medical office buildings and 18.1 percent hospitals, according to its website. As of Sept. 30, 2012, the portfolio was 96.8 percent leased.

Acquisitions announced this week include the Central Indiana Medical Office Portfolio I, a five-building, multi-tenant portfolio with 182,000 square feet of space in Indianapolis, Lafayette, Ind., and Carmel, Ind. The portfolio was acquired from entities affiliated with Cornerstone Companies, Inc.

Sutter North Bay Health Plaza in Santa Rosa, Calif., a three-story, multi-tenant medical office building with 102,000 square feet, was acquired from Urdang/Sequoia Creek Holdings, which was represented by Vince Schwab of Marcus & Millichap.

Northside Medical Office Building, a three-story property with 53,000 square feet located on the campus of Hospital Corporation of America’s Northside Hospital in St. Petersburg, Fla., was acquired from Northside Medical Plaza L.L.C., which was represented by Philip Faircloth of RJ King Associates. It is leased to eight tenants, including the hospital which rents more than half of the building.

Physician’s Office Pavilion at WakeMed North in Raleigh, N.C., is a four-story, multi-tenant building with about 77,000 square feet of space located at the WakeMed North Healthplex, which has announced plans to build a 61-bed acute care hospital on the campus. The building is fully leased, more than half of it to long-term triple-net tenants. It was acquired from Jamestown North MOB L.P., represented by Chris Bodnar and Lee Asher of CBRE Inc.

Bessemer Medical Office Building, a five-story building with about 100,000 square feet of space is located on the Medical West hospital campus in Bessemer, Ala., The building was acquired from the Johnson Development subsidiary of Med West MOB L.L.C., which was represented by Sean Tu and Mike Davis of Cain Brothers.

Five assisted living facilities with a total of 183,000 square feet and 480 beds in North Carolina were acquired in a sale-leaseback transaction from Carillon Assisted Living L.L.C., which was represented by Jason Ficken of Quadriga Partners. The properties are fully leased and located in Fayetteville, Fuquay-Varina, Indian Trail, Knightdale and Lincolnton, N.C.

The purchases were made using $133.3 million in borrowings under the REITS’s unsecured line of credit with Bank of America,  N.A., cash and units of limited partnership of Griffin-American Healthcare REIT II Holdings, L.P., the REIT’s operating partnership. Those units were issued to the sellers of the Central Indiana MOB Portfolio I as partial payment, the REIT stated.

Griffin-American REIT II also borrowed $23.5 million from its unsecured line of credit with Bank of America for the Bellaire Medical Center purchase near Houston, and $22 million for the acquisition of the Massachusetts Senior Care Portfolio. Both purchases also required cash to complete.

The medical center is a 161,000-square-foot, 154-bed long-term acute care center and behavioral rehabilitation hospital built in 1978. Approximately $6.8 million will be spent to increase patient beds. It was acquired from 5314 Dashwood, L.P., a subsidiary of PinPoint Commercial.

The Massachusetts portfolio has 201 beds in three buildings that include skilled nursing and assisted living faculties with a total of 104,000 square feet of space in Boston and Dalton, Mass.  It is master leased to Trinity Health Systems L.L.C. under a long-term absolute net-lease. The off-market purchase was acquired from Merrimack Health Group Inc.

The REIT, co-sponsored by American Healthcare Investors and Griffin Capital Corp., was previously known as the Grubb & Ellis Healthcare REIT II. Several large acquisitions were made throughout 2012, including the purchase of six buildings for nearly $109 million that was announced in early October. That acquisition included three Los Angeles-area hospitals. A week earlier in September, the REIT had stated that it acquired three medical office properties for about $60 million, two in Knoxville, Tenn., and one in DeSoto, Texas.

Garden City, N.Y.

Avoiding the end-of-year fog that plagues so many, Summit Hotel Properties Inc. kept busy in late December and wrapped up a few acquisitions before 2012 came to a close. The lodging REIT completed the purchase of three hotels in two transactions totaling $71.8 million, thereby adding 438 guestrooms to its portfolio.

Summit acquired two of the assets, Hampton Inn & Suites in Tampa, Fla., and Hyatt Place on Long Island in Garden City, N.Y., from OTO Development L.L.C. The 138-room Hampton Inn, purchased for $20.8 million, will be upgraded via a $2 million capital investment. Hyatt Place, picked up for $31 million, becomes the REIT’s only asset in the State of New York. The 122-room hotel will be freshened up with $305,000 in improvements.

On the other side of the country, in Utah, Summit bought Residence Inn by Marriott Salt Lake City-City Center from Third West Lodging Associates L.C. for $20 million, including the assumption of 14.1 million of existing debt. Featuring 178 guestrooms, the property will benefit from $6.5 million in upgrades. Summit plans to roll out the renovation programs at the hotels within the next 18 months, financing the projects through cash on hand or borrowings under its senior secured revolving credit facility.

The three hotel purchases, as asset management and private equity firm Robert W. Baird & Co. observes in a new research note, mark a move in Summit’s ongoing program of match-funding capital raises with accretive, high-quality acquisitions; the REIT completed a $75 million preferred equity raise in December.

“They are ‘middle of the fairway’ deals–high-yielding, high-growth properties with strong brands in top markets,” David Loeb, senior research analyst with RW Baird, told Commercial Property Executive. “Management deployed proceeds from its recent capital raise quickly, which is a positive and a testament to the company’s strong pipeline and ability to close deals quickly. We expect more of the same in 2013.”

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