In a Strategic Shift, BentleyForbes Pursues Trophy Office Buildings

BentleyForbes, recognized for more than a decade as a specialist in the sale-leaseback and net-lease arena, doesn't plan to abandon its roots anytime soon. But the Los Angeles-based company is expanding its commercial real estate holdings by aggressively targeting Class-A office properties, including select multi-tenant and single-tenant transactions.

In October, the company acquired a portfolio of eight suburban office buildings totaling 700,000 sq. ft. in Sacramento, Calif., from the Evergreen Co. in a transaction valued at $134 million, or $191 per sq. ft.

The acquisition is part of an aggressive expansion plan by BentleyForbes, which seeks to grow its real estate portfolio from $1 billion to $3 billion over the next two years. The company's current 11 million sq. ft. portfolio includes office (50%), retail (40%) and industrial (10%). NREI spoke with Frederick Wehba, chairman of BentleyForbes, about the underlying reasons for this aggressive growth strategy.

NREI: Why have you decided to pursue Class-A office buildings?

Wehba: When we did sale-leaseback deals, we were basically buying the creditworthiness of the tenant. We really didn't look at the real estate residual value as closely as we looked at the credit. However, as we've grown as a company we've decided we want to be more real-estate based. At the end of the day, we want to own real estate that has a high residual value. A single-tenant property in a remote area won't retain its residual value as much as a trophy property in a CBD or large suburb. We'll still do sale-leasebacks, but we'll also invest in trophy office properties.

NREI: What prompted you to purchase the eight office buildings in Sacramento from Evergreen Co.?

Wehba: It fit all our criteria. It was a very large portfolio, the real estate was excellent and the list of tenants included some top investment-grade companies.

NREI: How much of a premium do you have to pay for office product today?

Wehba: We're paying more per square foot than ever before. As far as cap rates for office product, I'd say the average cap rate is 8.25% to 8.5% today for buildings compared with 9.5% to 10% five years ago. Of course, that trend is driven by low interest rates.

NREI: How much leverage do you put on your properties?

Wehba: We usually finance 70% to 75% of the cost, and then we put our own equity into the deal. Whereas a lot of real estate owners are opting to do floating-rate deals today, we are locking in our rates on any loans that we can right now because we don't think low interest rates are going to last.

NREI: Your company name, BentleyForbes, is unique in commercial real estate circles. What is its origin?

Wehba: I tried to find a name that sounded prominent and blue-blooded. I had a “Rolls Royce” magazine that had a photograph of a Bentley on the front of it, and a “Forbes” magazine beside it. I was trying to come up with names, and I combined the two.

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