Also This Week: Guarded $2.6 Billion Asset Sale Creating Uncertainty in CMBS Markets; Shades of 2006-2007 Emerging for U.S. Equity REITs; and Financing News from Cole Capital; Lone Star; Crow Holdings; Chambers Street Properties; and more
Reven Housing REIT Inc. agreed to purchase a portfolio of 170 single-family homes in the Houston metropolitan area from Red Door Housing LLC and WFI Funding Inc.
The total contract purchase price is $13.4 million and the properties collectively encompass 242,964 rental square feet, of which 129 of the properties are subject to one-year leases with tenants, 33 properties are subject to month-to-month leases with tenants, and the remaining eight properties were vacant as of the date of this report.
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Under the agreement, the company may elect to close the acquisition in two separate stages.
Reven Housing recently completed a private financing of $11.9 million, selling common shares to King APEX Group II, Ltd. and King APEX Group III, Ltd., two funds managed by Allied Fortune (HK) Management Ltd., a Hong Kong based funds management company.
“This financing marks a major milestone in the growth of our company. The amount of new capital, coupled with the conversion of 86% of the outstanding bridge notes, provides Reven with a relatively debt free balance sheet going forward and over $10 million in cash. Our plan is to move quickly in acquiring additional real estate investments,” said Chad M. Carpenter, chairman and CEO of Raven.
Mystery $2.6 Billion Asset Sale Creating Uncertainty in CMBS Markets
Special servicer CWCapital Asset Management LLC is marketing a $2.57 billion portfolio described as predominantly cash-flowing real estate and commercial mortgage backed loan assets spread across the U.S., as well as some REO assets.
The assets securing the portfolio consist of nearly 8.9 million square feet of office, 3.2 million square feet of retail and 2,129 hotel rooms. Nearly two-thirds of the offering, as a percentage of unpaid balance (as of the September reporting period), is secured by office. The remainder of the portfolio is made up of the retail and hospitality assets.
The properties are located throughout the country, many in major markets. However, CWCapital is not publicly disclosing the list of assets included in the offering.
“While the timely resolution of distressed assets provides clarity regarding total expected losses within CMBS deals, [CWCapital’s] decision to withhold the list of assets to be sold will cause uncertainty in the marketplace, increasing spread volatility and causing weaker price performance,” Lea Overby, head of CMBS Research at Nomura Securities International wrote in a report to clients. “We therefore encourage the firm to reconsider its decision to keep the list of assets confidential and provide the marketplace with information necessary to accurately assess future cash flows in the set of deals specially serviced by the firm."
Shades of 2006-2007 Emerging for U.S. Equity REITs
Recent bond yield spreads are signaling familiar territory, though U.S. equity REITs have a decidedly different plan of action during this credit cycle, according to Fitch Ratings in a new report.
Bond yield spreads between equity REITs and corporate industrials have tightened to levels last seen during 2006-2007, the tail end of the last REIT credit cycle. However, a closer look by Fitch shows that equity REIT behavior has changed markedly over the last six years.
For one, “REITs are showing less tolerance for development risk, a likely byproduct of the economic crisis,” said Fitch director Stephen Boyd. “While most REITs have sufficient access to capital to fund development, their hesitation to grow pipelines aggressively has more to do with a desire to preserve financial flexibility by limiting their exposure to non-income producing assets.”
REITs are also showing less enthusiasm for share repurchases during this cycle, a more discerning approach that Fitch views as a credit positive.
Another notable change that Fitch has observed is a conscious move away from the “bigger is better” diversification strategy, utilized by some REITs during the last credit boom.
“The REITs of today are diversifying in a more prudent and thoughtful manner that plays more to their strengths,” Boyd said.
Boyd added, however, that there are still concerns that investors should continue to be aware of during this REIT credit cycle. In addition to the recurring threat of higher interest rates, REITs of 2013 are also contending with changes in tenant space usage requirements and leasing patterns stemming from technological developments that, for the most part, they did not encounter six years ago.
That said, the generally more prudent approach to portfolio and liability management has positioned equity REITs well for the foreseeable future, Boyd concluded.
Capital Markets Round-Up
, the private capital management business for Cole Real Estate Investments Inc., launched Cole Office & Industrial REIT (CCIT II) Inc., focused on net lease office and industrial assets. CCIT II intends to invest primarily in single-tenant, income-producing, “necessity” office and industrial properties leased to creditworthy-tenants under long-term net leases and are located throughout the U.S. Most of the properties are expected to be subject to “net” leases. Up to $2.5 billion shares of common stock are being made available in the primary offering.
Crow Holdings Capital Partners LLC
in Dallas closed Crow Holdings Realty Partners Fund VI at $1.067 billion. This exceeds the initial target of $750 million. 's Consistent with CHCP’s prior funds, Fund VI's investment strategy will focus on acquiring a diverse portfolio that generates current income and benefit from capital appreciation. The fund will acquire investments in various asset classes, including industrial, retail, office, multifamily, convenience & gas stores, hotel, medical, and land.
Chambers Street Properties
, a net lease industrial and office REIT in Princeton, NJ, completed an amended, restated and consolidated credit agreement, providing the company with $1.25 billion of new and refinanced unsecured borrowings and available capacity. A new unsecured revolving credit facility has $850 million in capacity and a maturity date of January 2018. The facility will carry an interest rate of LIBOR plus a spread that is based on the company’s leverage ratio and credit rating, should the company receive a credit rating. Its $200 million unsecured term loan, scheduled to mature in March 2018, is replaced with a new $200 million term loan with the same maturity date. An existing interest rate swap agreement will remain in place to effectively fix the all-in interest rate on the new term loan at 2.6385% for the duration of its term. It obtained a new $200 million unsecured term loan, scheduled to mature in January 2019. The company entered into an interest rate swap agreement to effectively fix the all-in interest rate on this term loan at 3.274% for the duration of its term.
Los Angeles County Employees Retirement Association
has approved an investment of up to $100 million in City View Southern California Fund II
. Los Angeles-based invests in smart growth projects such as urban land, housing, mixed-use, commercial, and infrastructure projects which promote efficient land use, urban redevelopment, neighborhood revitalization, sustainability, and metropolitan economic opportunity.
A joint venture comprised of Hudson Realty Capital LLC
, a real estate fund manager with more than $2 billion in assets currently under management, and an investment fund managed by Apollo Global Management LLC
, acquired a $200 million portfolio of non-performing, commercial real estate
loans and REO properties from Blairsville, GA-based United Community Banks Inc. The portfolio purchase is the third under the Hudson Realty/Apollo partnership. This transaction includes nearly 300 positions with collateral spanning several states, including Georgia, Tennessee, North Carolina, Florida and Wyoming. The portfolio is comprised of multiple property types, ranging from office, multi-family and retail, to land and special-use properties. The acquisition was supplemented with additional debt purchased from a CMBS trust on an Atlanta-area industrial complex. As manager of the portfolio, Hudson Realty will work to resolve the property loans during the next several years and will manage the assets from the company’s regional office in Fort Myers, FL.
Broadstone Net Lease Inc.
closed on a new $150 million unsecured credit facility. Regions Bank, Wells Fargo Bank, Bank of Montreal, and RBS Citizens, are all participants in the transaction. The facility is comprised of a $150 million unsecured term note that was fully funded at closing. The facility has an initial 3-year term and can be extended for up to two, 2-year periods. The proceeds will be used to pay down Broadstone Net Lease REIT's revolving line of credit and fund future property acquisitions. In addition, the facility also helps extend BNL's debt maturities out further in time. Borrowing rates for the facility float at margin over LIBOR and range from LIBOR + 175 bps to LIBOR + 250 bps, subject to the REIT's overall leverage ratio.
ARC Realty Finance Trust Inc.
originated a mezzanine loan of $9 million, which is secured by the borrower’s pledge of 100% of the equity interests in the owner of the Class A office tower known as 121 West Trade Street in the Central Business District of Charlotte, NC. It originated the mezzanine loan simultaneously with a $43 million senior loan (including a $5 million future funding facility allocated for tenant improvements, leasing commissions and capital expenditures) originated by an unaffiliated third party which is secured by the fee simple interest in the property. The mezzanine loan and senior loan total a 77.3% loan-to-cost ratio in relationship to the property and were made to allow the owner to acquire the property. The mezzanine loan has an initial term of three years, subject to two successive one-year extension options. It bears interest during the initial term at a floating rate equal to 3-month LIBOR plus 11% per annum and, during any extension term, 3-month LIBOR plus 11.25% per annum. The mezzanine loan requires monthly interest-only payments during the initial term and, during any extension term, monthly payments of principal and interest based upon a 30 year amortization schedule.
closed on two loans, totaling more than $31 million, for Artis
, a Winnipeg, Canada-based REIT, to acquire two office buildings in the Phoenix area: ASM America Headquarters Building and North Scottsdale Corporate Center II. “The REIT model continues to expand globally, and Canadian companies are a major player in the space,” said John Besse, executive vice president of commercial real estate for U.S. Bank. He did not disclose terms of the loan.
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