CoStar Lead Street (Jan. 28-Feb. 3): Hotels To Go

In this week's issue of CoStar Lead Street, we report that: Lodgian is undertaking a strategic review of its entire hotel portfolio; Angelo Gordon and RREEF are looking to acquire hundreds of million in properties for new investment funds; Extreme Networks is reviewing its use of its four-building headquarters campus; plus other news and the latest properties under contract, including Inland American REIT's deal to acquire 32 office, industrial and retail properties.

Lodgian Puts its 69 Hotels in Play

Lodgian Inc., one of the nation's largest independent owners and operators of full-service hotels, has initiated a review of strategic alternatives and retained Goldman, Sachs & Co. and Genesis Capital LLC, to assist in the review.

Lodgian currently manages a portfolio of 69 hotels with 12,540 rooms in 28 states and Canada. Of the company's 69-hotel portfolio, 42 are InterContinental Hotels Group brands (Crowne Plaza, Holiday Inn, Holiday Inn Select and Holiday Inn Express), 13 are Marriott brands (Courtyard by Marriott, Fairfield Inn, SpringHill Suites and Residence Inn), and 11 are affiliated with four other nationally recognized hospitality franchisors.

Prior to this, the company was seeking to divest of its non-core properties about 26 in all. Combined, the hotels posted a net operating loss of about $3.8 million.

Lodgian's core portfolio of 43 properties produces operating income of about $19 million/year.

Some of its higher profile properties include a Radisson Hotel in Phoenix, a Marriott Hotel in Denver, a Holiday Inn Select in Strongsville, OH, the Holiday Inn Inner Harbor in Baltimore, the Crown Plaza in Silver Spring, MD, a Courtyard by Marriott in Atlanta, and a Hilton Hotel in Fort Wayne, IN.

Other Lodgian properties are in Dallas, Houston, Philadelphia, Boston, Detroit, Pittsburgh, Cleveland, Cincinnati, New Orleans, Memphis and Hartford.

The company said there could be no assurance that the review will result in any specific strategic or financial transaction.

Be Among the First To Read Lead Street

Nearly 2,500 people read CoStar Lead Street each week. If you want to be among the first to know when a new CoStar Lead Street is posted, e-mail me your name, title, company and e-mail address. You can reach me by clicking on the byline above or at mheschmeyer@costar.com

Angelo Gordon Closes Net Lease Fund

Angelo, Gordon & Co. announced the closing of the AG Net Lease Realty Fund LP with commitments of $160 million.

Including leverage, the fund will seek to purchase as much as $500 million of net leased corporate real estate properties in the U.S. and abroad, with an emphasis on providing sale-leaseback financing to financial sponsors and non-investment grade companies.

Transaction size, inclusive of leverage, will range from $5 million to $200 million.

The fund was oversubscribed and received commitments from endowment, pension fund and high-net-worth investors. It has already invested more than $40 million in sale-leaseback financing transactions with financial sponsors.

The Angelo Gordon Net Lease team has extensive experience providing sale- leaseback financing to financial sponsors and their portfolio companies, in addition to working with privately held and publicly traded middle market companies. Sale-leaseback financing provides positive leverage for buyouts, add-ons, refinancings, recapitalizations and expansions, allowing users to access 100% of their real estate value while maintaining long-term operational control.

Gordon J. Whiting, managing director and senior portfolio manager, and Teddy Kaplan, managing director, will co-manage the fund.

RREEF Investing in Luxury Resorts

Colorado-based Epiphany Capital Partners I LLC formed a joint venture investment with RREEF Real Estate Opportunities Fund II, a fund advised by the real estate and infrastructure management arm of Deutsche Asset Management. The partnership will provide Epiphany Clubs with the capital to finance the development of new clubs throughout the world. Initial locations are planned in Vail, CO, and Punta Mita, Mexico representing over $270 million in membership revenue.

The Real Estate Opportunities Fund II focuses primarily on large portfolio dispositions by governments and corporations, hospitality and resort/leisure acquisitions, redevelopment opportunities, residential and retail projects and the indirect acquisition of real estate through operating company acquisitions in more developed markets.

Investors include a mix of public pension plans, Employee Retirement Income Security Act (ERISA) plans, endowments, family offices and high net worth individuals.

Epiphany Clubs are currently in Telluride, Colorado; New York City; Te Hapua, New Zealand; and Playa del Carmen, Mexico.

Extreme Networks Cancels Plans To Sell HQs

Extreme Networks Inc. has cancelled plans to sell its headquarters campus in Santa Clara and relocate headquarters.

"Following a review of the current residential and commercial real estate market in the Santa Clara area, I have come to the conclusion that market conditions are such that the sale of the campus and the relocation of the organization is not the right thing to do at the present time," said Mark A. Canepa, CEO, president and director of Extreme Networks. "The residential market is weak, and leases for commercial real estate are continuing to strengthen. We would foresee a substantial negative P&L impact of executing this transaction at the present time. Therefore, we will remain in our current location for the foreseeable future."

That doesn't mean changes aren't afoot for the four-building campus that Extreme Networks purchased a year ago for $70 million.

"Given that we have excess space in our Santa Clara facility, we're looking to separate and lease one of the buildings as a way to generate cash to offset general operating expenses," Canepa said.

Canepa also said the company has decided to move the manufacturing of the BlackDiamond 8800 product line to an Asian facility. This will be done during the balance of this year.

Sara Lee Consolidating R&D Operations

Sara Lee Corp. finalized plans for The Kitchens of Sara Lee, a multi-million dollar research and development campus to be located at the site of the company's corporate headquarters in Downers Grove, IL. The 150,000-square-foot campus will support innovation activities for the company's North American foodservice and retail businesses and will be completed in early 2009.

The Kitchens of Sara Lee will include culinary facilities; product, packaging and equipment development and testing; sensory services; a pilot operations facility; analytical and micro labs; and product training facilities. Sara Lee relocated most of its current research and development work to Downers Grove over the past year. When the new facility is completed, it will mark the first time in the company's history that all North American research and development activities are housed in a single location.

The Kitchens of Sara Lee will be a campus that includes:

· Research and development and culinary functions at 3131 Woodcreek Drive
· The functional leadership team offices next to the Woodcreek Drive facility at 3250 Lacey Road
· Sensory, training and customer experience facilities, with the company's marketing and selling functions at 3500 Lacey Road, the corporate headquarters building

"In the last year, we have consolidated our research and development functions in Downers Grove, Ill., from three major locations around the country, which has greatly enhanced our ability to rapidly translate identified consumer needs into value-added, high quality great tasting products," said Heidi Kleinbach-Sauter, Ph.D., senior vice president, research and development for Sara Lee Food & Beverage and Sara Lee Foodservice.

Marco's Pizza Growing

Marco's Pizza and its Ah!thentic Italian Pizza has concluded a franchise agreement with Dee Dee Stanley, a management veteran and her son Sean, an experienced fast food and sales manager, to open 56 units in the Carolinas. The first one opened this month in Hope Mills, NC, near Fayetteville.

The second unit is scheduled near Fort Bragg in Spring Lake, NC, in early spring.

Stanley said that she and her son and their company Triple S Foods Inc. plan to open Marco's Pizza stores in Raleigh Durham, Chapel Hill plus Charleston and Columbia, SC.

According to Jack Butorac, Jr., president of Marco's Franchising, Marco's plans have pizzerias in 10 states by the end of this year and plans on 500 units by 2010.

The restaurant chain was founded some 28 years ago by Italian native Pasquale "Pat" Giammarco in Toledo, OH, North Carolina will represent the seventh state for the rapidly growing company which also has 150 stores in Ohio, Indiana, Michigan, Arizona, Nevada and Wisconsin.

Be Among the First To Read Lead Street

Nearly 2,500 people read CoStar Lead Street each week. If you want to be among the first to know when a new CoStar Lead Street is posted, e-mail me your name, title, company and e-mail address. You can reach me by clicking on the byline above or at mheschmeyer@costar.com

Out From Under Contract

Agere Systems Inc. had a deal to sell its closed Orlando facility at 9333 S. John Young Pkwy. However, the buyer was not able to complete the transaction and Agere now doesn't expect to complete the sell of this facility until the end of the year.

Under Contract

KBS Real Estate Investment Trust Inc. agreed to acquire 625 Second St. in San Francisco, a four-story office building containing 134,847 rentable square feet. The seller would be Rosenberg SOMA Investments III LLC and the agreed upon purchase price is $51 million (about $378.20/square foot) plus closing costs. 625 Second St. was built in 1906 and fully renovated in 1999. The property is currently 100% leased by LookSmart Ltd., an online media and technology company that focuses on vertical search and provides related content, advertising and technology solutions for consumers, advertisers and publishers. The current aggregate annual base rent is $4.7 million. The LookSmart lease expires in November 2009, and the average remaining annual rental rate is $2.92 per square foot. LookSmart has the right to extend its lease for two additional five-year periods.

Republic Property Trust agreed to buy 1129 20th St. NW in Washington, DC, for $61.75 million or approximately $484.52 per square foot. The 127,445-square-foot, class-B office building is currently 28% leased and is owned by New York-based Joss Realty Partners. The transaction is expected to close on Feb. 16.

Three limited partnerships associated with AIMCO in Denver have agreed to sell three Omaha, NE, apartment complexes for $29.1 million to Northview Realty Group Inc., a Montreal-based firm. The properties include the Terrace Gardens Townhouses, a 126-unit apartment complex ($7.2 million of the allocated price); Lake Forest Apartments, a 312-unit apartment complex ($13.5 million); and The Apartments, a 204-unit apartment complex ($8.4 million).

Supertel Hospitality Inc. agreed to purchase seven hotels in Kentucky from Musselman Hotels II LLC. The purchase price for the hotels is $14.4 million, subject to downward adjustment for the hotels' positive cash flows occurring from Jan. 1, 2007 through the closing of the transaction. The closing of the transaction is expected to occur July 2. The hotels are as follows.

· Days Inn Motel, 12700 State Route 180, Ashland
· Comfort Inn Motel, 149 Willabrook Drive, Brooks
· Quality Inn Motel, 102 Gardner Lane, Cave City
· Comfort Inn Motel, 210 Calvary Drive, Glasgow
· Days Inn Motel, 105 Days Inn Blvd., Glasgow
· Comfort Suites Motel, 1850 Resource Way, Louisville
· Sleep Inn Motel, 1850 Priority Way, Louisville

Inland American Real Estate Trust Inc.'s joint venture, Minto Builders (Florida) Inc., (aka MB REIT), is in the middle of acquiring a portfolio of 32 office, industrial and retail properties totaling 9.55 million square feet of leaseable space from Bradley Associates for $487.6 million. MB REIT has completed buying about $260 million of the properties and still has the following properties under contract.

Property Name City, State Property Type Sq.Ft. Tenant 100 DeVilbise Drive Somerset, PA I 155,227 Sunrise Medical HHG Inc. 12th St. Mishawaka, IN I 136,564 Krizman International Inc. 14570 Industrial Park Road Bristol, VA I 106,898 Zenith Fuel Systems Inc. 294 Tollway Venture Franklin Park, IL I 97,766 Alkco Manufacturing Company 315 Kirk Road St. Charles, IL I 309,900 Dopaco Inc. 520 Metro Parkway Rochester, NY I 55,500 Iron Mountain Records Management Inc. 64th St. Milwaukee, WI I 186,000 Pechiney Plastic Packaging Addison Bradley JV Addison, IL R 28,200 Office Depot Inc. Bakersfield Venture LP Bakersfield, CA I 232,396 Dopaco Inc. Bekine Hillside Venture LP Cranberry Township, PA I 70,140 American Bottling Company Bradley Associates LLC P/S & P/T Columbus, OH I 15,000 El Dupont de Nemours Bradley Independence LP Independence, VA I 120,000 LeROI International Inc. Bradley Kentwood LLC Kentwood, MI I 80,000 Autocam Corporation Bradley Marshall LLC Marshall, MI I 57,025 Autocam Corporation Bradley Protection One LP Tuscon, AZ I 4,768 Protection One Alarm Monitoring Inc. Bradley Protection One LP Phoenix, AZ I 17,352 Protection One Alarm Monitoring Inc. Broadview 16th St. Venture LP Broadview, IL I 67,144 Intech EDM Inc. Coloma Property LLC Coloma, MI I 423,230 APL Logistics Conyers LP Tekonsha, MI I 74,480 Tekonsha Towing Systems Inc. Crossroads Parkway LP Bolingbrook, IL I 48,024 Illinois Tool Works Inc. Denver Highlands Holding LLC Highland Ranch, CO O 65,680 Software AG Inc. Durand Ave. Venture LLC ML Pleasant, WI I 194,793 Sapko International Inc. Firetower Venture LLC Rock Hill, SC I 45,000 Reliance Electric Industrial Company FR Centerville LLC Centerville, TN I 98,150 ATYS US Inc. Glen Burnie Venture LLC Conyers, GA I 121,600 Wil-Mac Container Corporation Glen Burnie Venture LLC Fountain Inn, SC I 110,700 Goglanian Bakeries Inc. Guion Road Venture LLC Indianapolis, IN I 81,600 North American Packaging Corp. Gurnee Venture LP Gurnee, IL I 43,475 Ameritech Illionis Indianapolis Churchman Venture LP Indianapolis, IN I 206,272 Wavelek Corporation Jamie Venture Alamagordo, NM I 9,698 Chaparrel Ven Lines Kinston LP Kinston, NC I 400,000 Dopaco Inc. Libertyvilla Associates LP Libertyvilla, IL I 197,100 USG Corp. Luna Road Venture LLC Carrolton, TX O 58,989 AON Services Corp. Marcia Road LLC Milwaukee, WI I 208,150 Hegemayer Foods (N.A.) Inc. Mount Zion Road LLC Lebanon, IN I 1,091,435 Peerson Education Inc. Multi-State Properties LP Maiden, NC I 36,752 Siebe North Inc. Multi-State Properties LP Ocate, FL I 29,501 Mako Compressors Multi-State Properties LP Skokia, IL I 44,123 W. H. Salisbury & Co. Newmark Properties LP Miamisburg, OH O 73,742 National City Mortgage Co. & Daymax LLC Newmark Properties LP Miamisburg, OH O 42,812 National City Mortgage Co. Newmark Properties LP Miamisburg, OH O 37,759 National City Mortgage Co. Regency Drive LLC Glendale Heights, IL I 56,046 L-3 Communications Tri-State Holdings LLC Wood Date, IL I 137,607 Entegra Fasteners Corp. Tri-State Holdings LLC Houston, TX I 223,599 Lamons Metal Gasket Company Tri-State Holdings LLC Mosines, WI I 193,200 Fulton Performance Products Inc. Union Venture LLC Westchester, OH I 970,168 Cornerstone Consolidated Services Group Inc.