Daymark Realty Advisors Overnight Becomes one of the Largest Real Estate Asset Management Companies in the Country
Grubb & Ellis Co. has created Daymark Realty Advisors Inc., a wholly owned and separately managed subsidiary that will now be responsible for managing the company's entire tenant-in-common (TIC) portfolio and provide specialized management services to the owners of the tenant-in-common properties.
As a result of the restructuring, Daymark Realty Advisors becomes one of the largest real estate asset management companies in the country, serving more than 5,200 clients and overseeing a nationwide portfolio of commercial property totaling approximately 33 million square feet, including more than 8,700 multifamily units.
Revenue for the Daymark reporting segment totaled $6.2 million for the fourth quarter, compared with $5.8 million in the fourth quarter of 2009. The segment reported full-year revenue of $21.9 million, compared with $26.7 million in 2009.
"The unique nature of the tenant-in-common business requires specialized expertise and intense focus, especially as the
commercial real estate industry begins to recover from the significant downturn of the past few years," said Thomas P. D'Arcy, president and CEO of Grubb & Ellis.
Grubb & Ellis will continue to focus on its core real estate services and non-traded REIT businesses, D'Arcy added.
Steven M. Shipp, who previously served as executive vice president of portfolio management for Grubb & Ellis Realty Investors, will lead Daymark as president and CEO.
Up until now, Grubb & Ellis' TIC business has been managed by NNN Realty Advisors Inc., which will now become a wholly owned subsidiary of Daymark.
One of Shipp's first orders of business will be to address NNN Realty Advisors financial situation.
NNN Realty Advisors is required to maintain a specified level of minimum net worth under loan documents related to some TIC programs that it has sponsored. As of Dec. 31, 2010, NNN Realty Advisors' net worth was below the contractually specified level of $10 million or $15 million with respect to approximately 30% of its managed TIC programs.
Failure to meet the minimum net worth on these programs could result in an event of default under which NNN Realty Advisors potentially could become liable for up to $6 million, Grubb & Ellis reported. To date, no events of default have been declared.
Daymark has engaged FBR Capital Markets & Co. to act as its financial advisor, which will also and primarily be sourcing new capital for the entire tenant-in-common industry.
Speaking on Grubb & Ellis's fourth quarter earnings conference call this week, Michael J. Rispoli, executive vice president and CFO, said the focus at Daymark from a revenue model perspective will be on asset management of a large portfolio and then working with third-party capital to try to bring new capital to the TIC industry.
"At Daymark obviously, the origination in the tenant-in-common business is potentially stopped. So what was a $4 billion business in 2007 is now probably a $100 million this year from the equity-raise perspective. So from a Daymark perspective the focus is clearly not on new origination but on asset management," Rispoli said. "Additionally, we think there is meaningful opportunity to generate revenue by bringing capital to the highly undercapitalized TIC industry."
"The TIC industry itself is in a fair amount of distress currently," Rispoli added. "That is a $15 [billion] to $20 billion asset business of which our portfolio represents approximately $4 billion of the original cost. So the challenge for the TIC industry is that it is very difficult to bring incremental capital to the table in those programs. So FBR is going to be hard at work with Daymark in sourcing third-party capital to help these TIC investors kind of bridge to the other side of what obviously has been a challenging commercial real estate market."
Grubb & Ellis said the establishment of Daymark was part of its overall restructuring of its operations on a more segmented basis along its various business lines.
Daymark will be based in Santa Ana, CA, with regional offices in Atlanta, Chicago, Dallas, Phoenix and Richmond, VA.
Daymark Realty Advisors will provide strategic asset management, property management, structured finance, accounting and loan advisory services to its existing portfolio.
Daymark intends to provide similar services for unaffiliated third party owners, including strategic asset management, property management, structured finance and loan advisory services to third party owners.
Separately, Grubb & Ellis said it has become aware of bankruptcy filings effected by two unaffiliated, individual investor entities, both of whom are minority owners in two TIC programs in Texas: Met Center 10 at 7551 Metro Center Drive in Austin, a 345,000-square-foot class B flex building; and 2400 West Marshall Drive in Grand Prairie, 111,471-square-foot, class B office building. Both properties were originally sponsored by a wholly owned subsidiary of NNN Realty Advisors.
The mortgage debt in connection with these properties matured in 2010 with principal balances of approximately $32 million and $6 million, respectively, at maturity. The special servicer for each of these loans foreclosed on the entire undivided TIC ownership interests in these properties, except those owned by the unaffiliated investor entities, which affected the bankruptcy filings. The automatic stay imposed following the bankruptcy filings by each of these investor entities prevented the special servicer from foreclosing on 100% of the TIC ownership interests.
Grubb & Ellis said it is investigating its potential liabilities related to the foreclosures and intends to seek an amendment to the loans on the properties relating to any liabilities of NNN Realty Advisors or its subsidiaries.
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