If you have a nice, Class-A office building that you've been meaning to unload for some time, give Beacon Properties Corp. in Boston a call. Or Sam Zell in Chicago. Or come to think of it, maybe Mort Zuckerman is in the market for a nice property...
Lately the office REITs in particular have made no secret that they're in a definite buying mode. For example, we've been reporting on Beacon's mega-office buys in the recent months, and the hits just keep on coming, apparently.
In only two weeks in late-May and early-June, Beacon purchased the Westbrook Corporate Center in suburban Chicago for $182.1 million and then 225 Franklin Street in downtown Boston for $280 million. Friends, by my calculations (and anybody else's) that's more than $460 million of prime office property in some extremely diverse geographic locations. And just since January 1, 1997, Beacon has spent $641 million on 3.3 million sq. ft. of properties.
It's all part of Beacon's drive to get bigger. It now owns 116 properties totaling some 8.6 million sq. ft. of space.
To date, Beacon hasn't made many moves to acquire other companies, such as another REIT, but it has been busily transforming its once Boston CBD-only portfolio into a financial powerhouse.
It has also moved to hire some impressive talent to run those increasingly far-flung operations, including Val Wheeler (formerly president of Equity Office) in Chicago and Jeremy Fletcher in Los Angeles.
Two new arrivals Beacon purchased the Westbrook Corporate Center in Westchester, Ill. from Podolsky Northstar Realty Partners LLC. The five-building complex increases Beacon's Chicago portfolio to 2.7 million sq. ft. Podolsky will continue as the property's leasing agent.
The company further stengthens its stranglehold on downtown Boston with the 225 Franklin buy. Now Beacon owns no less than 25% of all Class-A Boston CBD space. The 31-year-old property underwent a $95 million renovation in the past eight years and is nearly 100% leased.
In May, Beacon actually shed its $72.1 million portfolio of suburban Philadelphia office buildings, selling them to Cali Realty based in New Jersey.
Here come the Zs Will Beacon do more of the same? Undoubtedly so, especially now that Sam Zell's Equity Office and Mortimer Zuckerman's Boston Properties REITs have been formally launched on the public streets of gold after months of speculation.
The unique thing about these new offerings is their monstrous size. Zell's REIT began life in June at a $500 million market cap, while Zuckerman's REIT came to market with $900 million of properties. Those are daunting figures to match, and generally the notion today is that bigger must be better, if you want to get on investors' radar screens at all.
Both the Equity and Boston Properties REITs offer investors some truly trophy properties with great values, and surprisingly located predominantly in America's downtowns. As with most other major issues these days, the deals' lead managers (Merrill Lynch as lead manager for Equity Office and Merrill Lynch/Goldman Sachs as co-leads on the Boston Properties deal) were swamped with investor interest, making them well oversubscribed.
In the months ahead, look for more mergers and consolidations in REIT-land. It is inevitable in an era where the Dow Jones Industrial Average swings from 7800 to 7600 and back again in only two days. In many ways, it's nice to see commercial real estate get so much investor interest and respect these days, but the volatility will keep us guessing for a while...
China here they come. Bankers Trust has signed on with three other global investors in a consortium to put $50 million into a new master-planned executive community outside Shanghai, China.
Called Shanghai Links Executive Community, the $500 million master-planned development will be located directly on the East China Sea, 25 minutes east of Shanghai's new central business district, the Pudong New Area. The other three original investors include H&Q Asia pacific (an affiliate of Hambrecht & Quist), New York Life and investment funds managed by HSBC Private Equity Management Limited. Their $50 million will be used to build an initial group of 800 North American-style homes, directly aimed at the expatriate community of multinational corporations doing business in China.
When completed, Shanghai Links will be an independent community of 300 townhomes and 500 detached single-family homes for approximately 5,000 expatriates. The housing component will be leased to multinational corporations seeking to relocate their executives to Shanghai.
The community will have its own water treatment plant, integrated property management, hospital and retail town center, and it will serve as home to the Shanghai American School, the Shanghai American Club and a Jack Nicklaus signature golf course.
The investment is a bit of milestone since it marks one of the initial investments in Asia by U.S. pension funds (through HSBC and H&Q), and it is Bankers Trust's first foray into Asia. Bankers Trust International PLC and BT Securities, subsidiaries of Bankers Trust New York Corp., structured and arranged the transaction through its London, Hong Kong and New York offices.
A group of major institutions isinvesting $50 million to createShanghai Links, a premier American-style master-planned communityon the East China Sea east of Shanghai.
The project's developer is Sealand Housing Corp., a real estate company based in Hong Kong, which will retain a 60% interest in the development, while the consortium acquires a 40% interest. Sealand has already put up $50 million for land creation (reclaimed land from the sea), making it the largest foreign landowner in China.
"The number of expats in emerging market mega-cities like Shanghai or Bombay is increasing at a rate of about 35% per annum," says Barry Hansen, president of Sealand Housing Corp. "We expect to do business with about 15% of the expats who have company rent packages in that market."
Upon completion of the first 150 units, Hansen expects to securitize about $200 million of the total $500 million project cost through rent receipts. He also expects the project to generate at least a 30% annual return to investors.
The first phase of development is expected to come on stream late this year. By the end of 1998, most of the housing will be ready, and by the end of 1999, the entire project should be completed.
"The purchasing power of these expat families in Shanghai Links is phenomenal," says Hansen. Ultimately, Sealand would like to entice American retailers to set up shop there. "They'll have 5,000 predominantly American people with disposable incomes of $250,000 a year."
Already, some $70 billion has been pumped into Pudong for infrastructure development. The area will soon be home to China's new international airport and stock exchange.
"During a direct survey of multinationals leading up to this investment, we discovered a unanimous trend of increased expat presence in Pudong and we think this is only the tip of the iceberg," says Marcus Thompson, deputy managing director of HSBC Private Equity Mangement Ltd., the largest investor in the consortium.
Hansen said Sealand is working on other expat-oriented projects in Beijing, China, Bombay and Delhi, India.
Nations, BofA enter race for investment banks Obviously there's something in the air. Investment boutiques are hot properties all of a sudden.
First it was Bankers Trust and Alex. Brown merging forces in New York for $1.7 million. Then SBC Warburg bought Dillon, Read & Co. for $600 million. The scene shifted to the left coast, San Francisco, a traditional hotbed of banking activity, with BankAmerica Corp. buying Robertson Stephens for $540 million. And most recently (we had to go to press sometime) NationsBank is courting Montgomery Securities, also of San Francisco, for a proposed $1 billion+ deal.
As Robertson Stephens Chairman Sanford Robertson recently remarked, "BankAmerica is, for us, the right partner at the right time. Along with a common cultural vision, they bring to our firm significant capital, an extensive client base and fixed-income capabilities."
Robertson Stephens at a glance: Headquarters: San Francisco Employees: 800+ 1996 Revenue: $370 million Assets under management: $4.3 billion Equity capital: $3.25 billion
What's really happening here? For the commercial real estate business, we're just witnessing the continued consolidation of the major capital sources for our industry. And as old-time banking laws bring down the barriers between commercial banks and the securities industry even further in the coming months, you can look for more summer weddings. Consider the comments from BankAmerica Chairman and CEO David Coulter: "We expect, with this addition, to build a platform from which to offer our clients a broader range of equity underwriting and other investment banking and investment management serivces than we are currently able to provide."
Recent figures from Wall Street indicate that 1997 mergers and acquisitions activity is on pace to surpass the previous record set four years ago. On Wall Street itself, the largest merger of the year was Morgan Stanley and Dean Witter Discover, and don't think others aren't seriously considering similar partnerships.
But even so, not all of the tie-ups are permanent. Consider what's happening in the conduit business with such interesting alliances as First Union and Lehman Brothers, etc., and you have a formula for more to come.
As one industry insider remarked, "Everybody's for sale at a price. We ain't seen nothing yet."
Doubletree sets record for largest one-day brand conversion On June 9, Phoenix-based Doubletree Hotels Corp. simultaneously reflagged 36 Red Lion hotels in the largest one-day brand conversion in full-service hotel industry history. The converted hotels, which were part of Doubletree's Red Lion acquisition last November, were located in Arizona, California, Colorado, Idaho, Montana, Nebraska, Oregon and Washington.
In related news, Doubletree has formed a strategic alliance with OfficeMax Inc. to offer business services to hotel guests at the company's mid-market Club Hotels by Doubletree brand properties.
Jameson continues SE expansion with 50 down and 50 to go Jameson Inns Inc. opened its 50th hotel in June, but the Atlanta-based REIT, which develops and owns colonial-style, limited-service motel properties in the Southeast, has 50 more to go if it wants to meet its goal of 100 Inns by the end of 1998. Counting the milestone Tullahoma, Tenn., property, Jameson has opened seven properties so far this year and has 20 more currently under way. Each project costs about $1.7 million to develop, including land acquisition.
Prime begins seventh Atlanta-area AmeriSuites Fairfield, N.J., Prime Hospitality Corp. has begun work on its seventh AmeriSuites hotel in the Atlanta area. That's after opening three Atlanta-area properties already this year in Buckhead, Dunwoody/Sandy Springs and at the Johns Creek development in Duluth. The latest project, AmeriSuites Atlanta/Windward, which is a six-story, 128-suite hotel in Alpharetta, is due to be completed in January.
Westin breaks ground on Savannah Harbor Resort Westin Hotels Resorts, Seattle, and CSX Realty Development LLC have broken ground on The Westin Savannah Harbor Resort, a 403-room luxury golf and spa destination hotel in Savannah, Ga. The Westin-managed resort is scheduled to open in spring 1999. Construction, bridge loan and permanent financing for the $98 million resort has been provided by Nomura Capital, New York. It will be the centerpiece of Savannah Harbor, a 700-acre mixed-use development being undertaken by CSX Realty, a Jacksonville, Fla.-based affiliate of CSX Corp.
MGM Grand, Marriott plan two new hotels in Vegas MGM Grand Inc., Las Vegas, and Marriott International Inc., Washington, D.C., have signed a letter of intent to develop a 1,500-room Marriott Marquis hotel and a 500-room Ritz-Carlton hotel at the MGM Grand Hotel/Casino's "City of Entertainment" complex in Las Vegas. Under the arrangement, Marriott and The Ritz-Carlton Hotel Co. LLC will manage the non-gaming properties for MGM Grand, the owner.
Marriott Marquis at the MGM Grand will be completed in 1999 and will be connected to the 380,000 sq. ft. MGM Grand Conference Center, which is scheduled to open in March 1998. Construction is scheduled to begin by the year 2000 at The Ritz-Carlton at MGM Grand.
Coopers & Lybrand, Microsoft debut online resource Calling it "the hotel industry's on-ramp to the information superhighway," Dr. Bjorn Hanson, New York-based chairman of the Coopers & Lybrand lodging practice, introduced the Coopers & Lybrand Lodging Research Network (www.lodgingresearch.com).
Powered by new technology from Microsoft Corp., the online information resource makes available via the Internet Coopers & Lybrand's econometric forecasts for the U.S. lodging industry, lodging industry news, econometric profiles of U.S. lodging markets, a database of acquisitions, financial data of publicly traded lodging companies, new hotel construction data, lodging census and TREND data from Smith Travel Research.
Data can be purchased in combinations and packages at a range of price points, with no charge for certain services.