Thompson Out to ‘Create Value Out of Chaos’

Earlier this week, former Grubb & Ellis Co. chairman Anthony Thompson (pictured) launched a new venture, Thompson National Properties L.L.C., a private investment management firm. The explicit purpose of the company is take advantage of current market conditions, which Thompson refers to as the “fourth recession” of his career. Having experienced previous downturns, he says he’s poised to make the most of this one. CPN:Your goal is to take advantage of the downturn? Thompson: Yes. With the successful completion of the reverse merger with Grubb & Ellis, my job was done at NNN Realty, and as the credit crunch played out, I saw opportunity in the downturn. I wanted to form a private company for that purpose, with the flexibility and maneuverability that come with being private, because those are essential in the tough new market. The great thing about being private is that you can take advantage of what the market gives you. The new company means getting into the details of creating value out of chaos. At NNN Realty, we bought stable, cash-flow-oriented properties for our TICs, which was entirely appropriate. But the opportunity to make money in an environment like this isn’t in properties like that – it’s in value-add properties that have vacancies or cash- flow issues. It’s roll-up-your-sleeves real estate investing. The bottom line is this: current market conditions offer strong opportunities for real estate operators who have cash, experience, discipline and an understand of markets. It’s a chance to buy debt and equity at discounts we haven’t seen in 15 years. CPN: You’ve had similar experience in previous downturns? Thompson: I did a lot of value-add deals in the ’70s and early ’80s, and bought a lot of Resolution Trust Corp. properties back in the ’90s, so it’s fair to say I’ve had experience in opportunistic investment. In situations that involve adding value through operating more efficiently, aggressive lease-up strategies, making capital improvements, and so forth. CPN: Naturally capital is going to be king in such an environment. Thompson: A lot of sophisticated, well-capitalized investors are entering the markets, and that bodes well for us. We’ll be investing for our own account, and for high-net-worth individuals and institutions, both foreign and domestic. The thing they have in common is access to equity. We anticipate placing anywhere from $500 million to $1 billion in our first year. CPN: What’s different about the slump this time, as compared to the early ’90s? Thompson: Back then there was tremendous overbuilding in almost every asset class, but especially retail and office, because of easy money and tax incentives before the Tax Reform Act of 1986. It took a decade of almost no building to full up a lot of that excess space. In general today, there isn’t the issue of overbuilding with office or retail, which is the good news. On the other hand, today we’re faced with a serious crisis because leverage got so out of hand – it was too easy to get debt because it was being packaged and resold around the world, which had never happened before. So we have almost a standstill in lending, along with an overall decline in job growth and inflationary pressures from commodity prices. So the causes are different, but the end result is about the same: values are falling, and transaction volume is down — probably half of what it was a year ago. CPN: How long will the tough new environment last?== Thompson: It’s impossible to say exactly, but I see a continuing difficult landscape all the way through 2009, because next year is going to be a watershed year of refinancing. A lot of highly leveraged commercial loans placed in 2004 will have to be refinanced next year. Their rates were in the high 4s or low 5s – today the rate would be 100 basis points higher. == Cash is readily available internationally, and the weak dollar is working in favor of investors from all over the world, who are coming in for trophy assets like never before. I see this continuing through 2009 and into 2010.