Starwood Picks Up Sizable REO Office, Retail Portfolio for $191M

Starwood Capital Group has completed, through a controlled affiliate, the acquisition of a pool of real estate-owned assets from special servicer CWCapital Asset Management L.L.C. for $191 million.

Starwood Capital Group has completed, through a controlled affiliate, the acquisition of a pool of real estate-owned assets from special servicer CWCapital Asset Management L.L.C. for $191 million, Starwood announced Wednesday. The portfolio comprises seven office assets totaling 1.3 million square feet and four retail assets totaling 295,000 square feet.

The individual properties are:

  • 3800 Chapman, an office property in Orange, Calif.
  • 500 Orange Tower, an office/retail property in Orange, Calif.
  • Arrowhead Creekside, an office property in Glendale, Ariz.
  • Avion Lakeside, an office property in Chantilly, Va.
  • Howe Corporate Center, an office property in Sacramento, Calif.
  • Southcreek Corporate Center II, an office property in Overland Park, Kan.
  • Plaza Squaw Peak, an office property in Phoenix
  • Lincoln Ridge Retail, a retail property in Lincoln, Calif.
  • East Thunderbird Square North, a retail property in Scottsdale, Ariz.
  • Greenfield Gateway, a retail property in Mesa, Ariz.
  • Shoppes at Home Depot, a retail property in Antioch, Tenn.

“This acquisition … reflects our longstanding approach of buying assets at significantly below replacement cost,” Starwood Capital Group senior managing director Chris Graham said in a release. “As a result, we believe that this transaction features strong downside protection, as well as considerable upside potential in both the near and intermediate term.”

“We intend to sell several assets in the near term and deploy our in-house REO/workout team and operating platforms to create value on the remainder of the pool,” added Mark Keatley, a Starwood senior vice president.

A Starwood spokesperson told Commercial Property Executive that the company declined to add anything further to the information in the prepared release, and as of press time CWCapital had not responded to a request for additional information.

It appears likely, however, that this transaction grew out of CWCapital’s effort, announced last Oct. 10, to market a $2.6 billion portfolio of what it described as “predominantly cash-flowing real estate and commercial mortgage loan assets spread across the U.S.” including “real property assets representing trophy, core, core-plus and value-add strategic investments.”

That mega-portfolio included nearly 8.9 million square feet of office, 3.2 million square feet of retail and 2,129 hotel rooms. The properties were in both major markets like New York, Los Angeles, Chicago, metro Washington and Dallas and “emerging secondary markets.”

The portfolio was marketed by CBRE, together with Prospective purchasers had the opportunity to submit offers on individual pools, groups of pools, single assets or the entire portfolio.

“Evidenced by recent portfolio transactions, CWCapital feels that the market is in prime position to leverage the fluid capital markets and the recovering real estate market,” CWCapital Asset Management president Dave Iannarone said at that time.

This transaction took place within a general downward trend for sales of distressed property, according to the 2013 Big Picture report from Real Capital Analytics Inc., released earlier this month. Distressed sales accounted for 8 percent  of all transaction volume in 2013, a substantial decline from 10 percent  in 2012.

“Distress is no longer a significant factor weighing down market trends, but will remain part of the marketplace through 2014 and into 2015,” the RCA report predicted.

Overall, the report states, lenders are making steady progress in reducing the $140 billion in defaulted loans remaining, from a high of $412 billion five years ago. A major factor in this reduction of distress balances reportedly is a “steady decline in new inflows of distress,” from $63.7 billion  in 2011 and $39.5 billion in 2012, to $16.0 billion  for all of 2013.