Cornerstone Real Estate Advisers Announces New Charlotte Office Building

25-Story Office Building to be Built at the Corner of Tryon and Third Street in Uptown Charlotte--Babson Capital Management to be Anchor Tenant

Cornerstone Real Estate Advisers, on behalf of one of its institutional investor clients, has announced the development of a 25-story Class-A office building named 300 South Tryon to be constructed at the corner of Tryon and Third Street in Uptown Charlotte. Groundbreaking is set for the fall of 2014, and construction is scheduled to be completed by the spring of 2017. Babson Capital Management will be the anchor tenant in the new office building, and the firm plans to relocate its existing Charlotte operations from the Duke Energy Center once construction is complete. The building will achieve LEED Gold Certification, reflecting the city's strong commitment to sustainable design, and include a state-of-the-art water management system, significant use of sustainable materials during construction, energy efficient use of natural daylight to complement interior lighting, recycling areas within the building and preferred parking with charging stations for low emission vehicles.

"We are excited to move forward with the development of 300 South Tryon Street and to once again partner with Spectrum Properties to develop this high quality office building," said Mike Zammitti, Managing Director at Cornerstone Real Estate Advisers. "We believe the property is well-positioned to create value for our investors, and are proud to have already secured such a strong tenant in Babson Capital."

"The Babson team is excited to be partnering with our affiliate Cornerstone and with Spectrum to bring a first class office complex to the heart of Charlotte, " said Tom Finke, Babson's Chairman and Chief Executive Officer. "The expansion of our Charlotte office is an important part of our growth strategy, and establishing tenancy in 300 South Tryon Street will ensure our long-term facility needs are met."

Maine’s real estate market expected to keep growing

Maine’s real estate sector has strengthened over the last year and shows prospects for further improvement, according to the Maine Real Estate & Development Association.

A statewide index compiled for the trade association factors in residential and commercial real estate market trends and construction employment. The most recent index update, released Tuesday, rose to 78 from 77 in January.

That gain marked the second consecutive increase on the index scale since the association and its partners began tracking the data. The MEREDA Index is compiled quarterly, starting with the first quarter of 2006.

The index has risen by 2.4 percent since the first quarter of 2013, driven by strength in the residential market, which offset a slight drop in commercial activity, the association said. Construction employment has started to recover slowly.

Compared with the first quarter of 2013, the residential market is up 7 percent, while the commercial market has declined 1 percent. Construction employment increased by 0.5 percent over the same period.

“The economy is certainly turning around,” said Drew Sigfridson, the association’s president, at its annual spring conference Tuesday in Portland.

The MEREDA Index was derived from several economic indicators representing various aspects of real estate and construction activity, including commercial and residential property sales, construction employment, lease rates, mortgage loan originations and vacancy rates.

The sectors are weighted to reflect their importance to the real estate market. Commercial real estate indicators comprise 50 percent of the index, residential real estate is 40 percent, and construction activity is 10 percent.

The MEREDA Index is published twice annually in partnership with Charles Colgan, professor of public policy and management at the University of Southern Maine’s Muskie School of Public Service.

Brevan Shuts CMBS Fund Early

When Brevan Howard Asset Management launched a hedge fund designed to profit from the U.S. recovery, it gave itself two-and-a-half years to do it. As it happens, the firm didn’t even need that much time.

Brevan Howard plans to liquidate the US$385 million after just two years. The Brevan Howard CMBS Fund, which debuted in 2012, has earned more than 20% investing in commercial mortgage-backed securities.

The larger tranche made 21.57%, and the smaller 20%, the Financial Times reports. Taking the staggered returns of capital into account, the returns were an even more impressive 44.3% and 35.5%.

Commercial real estate transactions

DALLAS, TX: SALES

Inland Real Estate Acquisitions Inc. purchased Tarrant Parkway Commons, a 56,722-square-foot grocery-anchored retail center at the northeast corner of US Highway 377 and North Tarrant Parkway in Keller. Adam Howells, Kevin Catalani and Jessica Donnelli of UCR Investment Sales brokered the sale with Matthew Tice.

Pappas Harris Properties LLC bought Northgate Business Park 1 Buildings 11, 12, and 13 from Northgate Business Park Inc. The 81,500-square-foot, three-building office-warehouse complex is at the southwest corner of Plano Road and Chartwell Drive in Dallas. TIG Real Estate’s Matthew Hickey and Tom Smolik brokered the sale.

Hisun Motors Corp. purchased a 172,108-square-foot industrial facility at 310 E. University in McKinney. Bob Kent of Structure Commercial negotiated the sale.

FL Shih Investment Corp. bought a 37,530-square-foot commercial property at 9136 Viscount Row in Dallas. Jeremy Mercer of Mercer Co. brokered the sale with KCC Realty’s K.C. Cheah and Pacific Realty’s Alfred Goh.

Herb’s Paint & Body bought a 14,000-square-foot building on 1.3 acres at 9983 West University in McKinney. Eddie Liebman of The Weitzman Group handled negotiations.

DALLAS, TX: LEASES

Ryder Integrated Logistics leased a 51,987-square-foot industrial space at 1200-1216 Trend Drive in Carrollton. Ken Wesson, Adam Graham and Scott Alexander of Lee & Associates negotiated the lease with Shirley Laymance of CBRE Group.

Southside Trim leased 38,550 square feet of industrial space in Centreport 4 at 4300 Buckingham Road in the CentrePort development south of Dallas/Fort Worth International Airport. Blake Anderson and David Eseke of Cassidy Turley negotiated the lease.

PEG Bandwidth LLC leased a 35,088-square-foot warehouse at 3505 Garden Brook in Dallas. Al Taghizadeh of Megastar Realty negotiated the lease with Larry Robbins of Capstone Commercial.

The Holiday Warehouse leased 15,240 square feet of retail space at 2819 W. 15 St. in Plano. Jeremy Cummings and Eric Deuillet of Structure Commercial negotiated the lease.

Paragon Brokerage Inc. leased 14,382 square feet of office space in Heritage Business Park Building VII at 720 Industrial Blvd. in Grapevine. Michael T. Spain of Bradford Commercial Real Estate Services negotiated the lease.

EGistics Inc. leased 12,410 square feet from KBS Realty Advisors in the Tollway North Office Park on Tennyson Drive in West Plano. Justin Miller and Nathan Rylander of Transwestern negotiated the lease.

DBG Loyalty rented 8,333 square feet of office space from Boxer Property at 2300 Valley View Lane in Irving. Mark Dowdle negotiated the lease for Boxer Property.

Texas Child Neurology leased an 8,064-square-foot medical office space at 4032 McDermott in Plano. Debi Carter of Hudson Peters Commercial negotiated the lease.

Spectrum Diagnostics LLC leased 7,215 square feet of office space in Arlington Oaks at 209 Billings St. in Arlington. Judy Nitzinger of Coldwell Banker Commercial DFW negotiated the lease.

Recruit Combine LLC leased 5,397 of industrial space in Oakhollow Business Park at 1220 Corporate Drive West in Arlington. Judy Nitzinger of Coldwell Banker Commercial DFW negotiated the lease with David Dunn of Sperry Van Ness/Dunn Commercial.

Playtri rented 5,300 square feet for a new store in Longwood Plaza at 7171 Colleyville Boulevard in Colleyville. Ward Richmond and Bryson Battle of Colliers International negotiated the lease with Chris Corbin with Venture Commercial.

Heidi’s Salon and Spa leased 5,135 square feet of retail space at 120 N. Main St. in Grapevine. Eric Deuillet of Structure Commercial negotiated the lease.

Nerd Kingdom subleased a 5,088-square-foot office space at 1955 Lakeway Drive within Waters Ridge Tech Center in Lewisville. Henry S. Miller Brokerage’s Dan Spika negotiated the lease with Jeff Schweitzer of Stream Realty.

Plano Urgent Care leased a 5,000-square-foot medical office space at 901 W. 15 St. in Plano. Debi Carter of Hudson Peters Commercial negotiated the lease.

DebtX: CMBS Loan Prices Remain Steady In March

BOSTON, May 5, 2014 /PRNewswire/ -- DebtX, the largest marketplace for loans, said today that price levels for loans underlying the CMBS universe were unchanged in March 2014 compared to February 2014.

 

"Prices were flat given the yield curve and consistent fundamentals, although we did see a nice year-over-year increase," said DebtX Managing Director Will Mercer. "In the secondary markets, we saw essentially the same pattern. There was no material movement in prices during the month."

 

DebtX reported the following for March 2014:

  

• CMBS loan prices. The estimated price of whole loans securing the U.S. CMBS universe remained steady at 94.7% as of March 31, 2014, with no change from February 28, 2014. Loan values were 91.4% on March 31, 2013. 

• Impaired performing loan prices. The weighted average monthly price of impaired performing loans traded at DebtX's marketplace was 78.8% in March 2014, compared to 78.9% in February 2014. Prices were 73.5% in March 2013.

• Non-performing loan prices. The weighted average monthly price of non-performing CRE loans traded at DebtX's marketplace was 46.5% in March 2014, compared to 46.2% in February 2014. Prices were 55.3% in March 2013.

CMBS Leverage Metrics Worsen, Fitch Finds

NEW YORK CITY—Performance metrics for legacy CMBS are doing just fine. As Trepp reported last week and as Fitch Ratings notes in its own report, delinquencies for these securities continue to fall.

However, some new issuance measures are worsening—namely the leverage metrics, according to Fitch Ratings' latest quarterly index report.

It reported that credit enhancement levels for US CMBS rose in first quarter of 2014, as underlying loan leverage increased.

Average AAA credit enhancement for Fitch-rated transactions rose by 75 basis points in Q1 from the prior quarter. "Credit protection for 'AAA' CMBS is now 150 bps higher than one year ago," according to Fitch Ratings' Managing Director Mary MacNeill.

Average BBB– credit enhancement increased by 62.5 bps quarter-over-quarter and is 75 bps higher than the first quarter.

In addition, the percentage of loans with Fitch-stressed loan-to-value ratios above 100% rose by nine percentage points in Q1 from the prior quarter to 65%. The percentage of loans having or allowing subordinate debt also increased, up by over four percentage points in Q1.

Other new issuance metrics, however, remained largely unchanged. The combined percentage of full and partial interest only loans was flat, while weighted average mortgage rates fell by 10 basis points from the prior quarter.

From a borrower perspective, of course, this trend is hardly a concern. The CMBS market is proving to be marvelously robust and flexible for borrowers with even unusually-structured deals able to secure financing.

Last month, to give one example, JK Equities closed on a $21.5 million CMBS loan from Natixis Global Asset Management to convert Baltimore’s Equitable Building into residential units. JK Equities is spending $32 million to convert the nine-story property into 180 market-rate housing units. Eastern Union Funding's Ira Zlotowitz and Meir Kessner helped secure the loan at a 4.91% annual interest rate on a three-year term.

As it announced the funding, Eastern Union reported increased activity in Wall Street lending in general, especially for complex deals like the Equitable Building transaction—which, it noted, is technically a non-recourse construction rehab loan with an additional level of mezzanine financing.

Rechler hires former Vornado controller as finance director

Plainview-based Rechler Equity Partners said Friday it has hired Gerard DelBene, the former controller for Vornado Realty Trust, as its director of finance.

DelBene worked for four years at Vornado, a publicly traded real estate investment trust and one of the largest owners of commercial space in the U.S.

At Rechler, which is one of the largest owners of commercial real estate space on Long Island, DelBene will oversee accounting and budgeting.

Atlanta investor eyes one of downtown Dallas’ largest skyscrapers

An Atlanta-based real estate investor has teamed up with one of the country’s largest life insurance firms to make a run at buying a downtown Dallas skyscraper.

The 60-story green-glass Fountain Place tower on Ross Avenue has been for sale since the end of last year.

Goddard Investment Group and an arm of Metropolitan Life Insurance are in talks to purchase the 1.2 million-square-foot office tower, real estate brokers say.

Goddard representatives said Friday that the company is not ready to comment on the deal.

Fountain Place, designed by I.M Pei and built in 1986, is expected to fetch close to $200 million.

Since 2011, the tower has been owned by JPMorgan Asset Management, which hired HFF LP to market the building.

The skyscraper is more than 85 percent leased. Major tenants in the tower include Tenet Healthcare, Wells Fargo Bank, Bracewell & Guiliani, Hunton & Williams and the General Services Administration.

As part of the investment deal, real estate brokers say the new owners plan to construct a large parking garage on the 1.5-acre vacant lot just north of Fountain Place.

Many of downtown’s largest buildings are adding parking as occupancy levels increase and the number of attractions downtown grows.

Fountain Place is the latest in a string of downtown Dallas skyscrapers than have attracted interest from out-of-town investors.

“The sale of Fountain Place and the timing of the sale is consistent with the numerous positive changes occurring in downtown’s urban core,” said John Crawford, CEO of the economic development group Downtown Dallas Inc.

“There are a number of investment opportunities in play, and the sale of Fountain Place and the quality of the purchasers certainly adds credibility to what we have to look forward to in downtown Dallas,” Crawford said.

Goddard Investment Group is a privately held commercial real estate firm with a track record of large deals.

It owns the 22-story St. Paul Place office tower in downtown Dallas on Ross Avenue.

And it previously owned the 53-story Heritage Plaza in downtown Houston. Goddard sold the Houston tower in 2010 to Canadian investor Brookfield Properties for $325 million.

Hedge Funds Replace Banks as Europe Property Lenders

Investors in commercial mortgage bonds have grown so tired of waiting for Europe’s market to recover after the financial crisis that they are now lending directly to property developers.

Cheyne Capital Management (UK) LLP and Insight Investment Management Ltd. are among investors making loans. Firms started by former JPMorgan Chase & Co. banker Bill Winters and hedge fund manager Alistair Lumsden are raising money to lend, according to two people familiar with the matter.

Europe’s 2007 real estate crash triggered a wave of defaults that crippled the region’s commercial mortgage-backed securities market. Annual CMBS sales have averaged about 3.7 billion euros ($5.1 billion) since 2009, down from 39.9 billion euros in 2007. At the same time, banks recovering from the financial crisis and adapting to new capital rules have pulled back from property lending. Money managers, seeing an opportunity to profit, are moving into the lending void.

“Banks are shrinking their lending businesses and the CMBS market is not functioning,” said Graham Emmett, a London-based partner at Cheyne, which oversees $6.5 billion of assets. “There is an opportunity for non-bank lenders to step in and buy distressed loans or make new loans.”

Outstanding European CMBS totaled 100 billion euros in the fourth quarter, down 33 percent from 2009.

Renshaw Bay, the asset manager started by Winters in 2011, raised more than 150 million pounds ($253.2 million) this year for its real estate fund that makes loans, according to a person familiar with the matter.
Stagnant Market

AgFe LLP, the London-based advisory firm founded by Paul Rolles, a former head of Morgan Stanley’s financial asset-backed securities team, is starting a second fund to provide senior-ranking loans, according to a person with knowledge of the company’s plans.

A spokesman for Renshaw Bay, who asked not to be named, citing company policy, declined to comment on the company’s plans. Rolles declined to comment on AgFe’s fund.

Lumsden, who stepped down as chief investment officer of CQS U.K. LLP’s $2.3 billion asset-backed securities fund in December 2012, is seeking to raise $250 million for East Lodge Capital Partners LLP, according to a person familiar with the matter.

The company will start trading this month and focus on direct lending and structured finance, said the person, who asked not to be identified because the plans are private. Georgiana Brunner, a spokeswoman for East Lodge Capital employed by Greenbrook Communications, declined to comment.
Prices Plunge

Commercial real estate prices in the U.K. plunged 44 percent from June 2007 to July 2009, according to researcher Investment Property Databank Ltd. Many CMBS deals were struck at the peak of the real estate market in 2007, and the drop in prices left thousands of properties in Europe worth less than the loans made to purchase them.

Managers of CMBS have waited for property prices to rebound so they could avoid losses, rather than working out the defaults immediately. Since U.K. prices hit bottom in 2009, they have recovered only 20 percent, according to the research firm.

CMBS managers who restructure troubled deals by selling debt and foreclosing on properties hold a record 18 billion euros of commercial real estate loans in Europe, according to Moody’s Investors Service. The ratings company estimates that losses on CMBS loans made before the credit crisis will total about 9 billion euros over the next five years.
Banks Retreat

Europe has been slower in dealing with distressed securities than the U.S., where a prompt clean-up after the credit freeze boosted confidence in the market. The U.S. CMBS market returned to growth last year with $80 billion of issuance, according to JPMorgan data. That compares with $12 billion in Europe in 2013, down from $54 billion in 2007, the data show.

“The CMBS market is a shadow of what it was,” said Shaheer Guirguis, London-based head of secured finance at Insight Investment, which manages about 270 billion pounds. “We don’t see sustained new issuance and in the secondary market volumes are very thin, meaning you can’t put a lot of money to work or express yourself in a sizable way.”

As the CMBS market languishes, European banks have retreated from real estate lending. Since 2012, they have disposed of 4.3 trillion euros of assets, from Paris office blocks to German-financed chemical tankers, in response to tougher capital rules from the Basel Committee on Banking Supervision. The banks sold property loans with a face value of 18 billion euros last year, up from 13 billion euros in 2012, according to PricewaterhouseCoopers LLP.
Cheyne’s Investments

Banks typically lend no more than 65 percent of a property’s value, according to Emmett, the Cheyne partner. Borrowers wanting to raise more financing will either need to find an investment partner or seek a whole loan from a new lender, Emmett said.

Cheyne is currently financing several projects in Europe, said Emmett. They include an office building being converted to student housing in Bristol, U.K., an office property near London’s Oxford Street that will become a residential complex, and a refurbished multifamily residential building in Germany.

Loans now account for about half of the 1.5 billion pounds of real estate debt held by Insight Investment, said Guirguis. That’s up from zero just two years ago when the firm was focused on CMBS.

Hedge funds are originating whole loans because it allows them to acquire junior debt, said Thomas Jackivicz, a managing director at Citigroup Inc. in London. Hedge funds, which want junior debt because it offers higher yields, seek partners to buy the senior part of the debt, he said.
Easy Pickings

So far this year, the European CMBS market has yet to spring back to life. The only deal was the 110 million pounds of bonds backed by a shopping center in Manchester, England, sold in February.

“Immediately after the crisis there were some easy pickings in CMBS because a number of buyers needed liquidity and sold off their portfolios at significant discounts to the value of real estate,” said Emmett. “With the easy pickings now over, it makes sense to broaden out from CMBS bonds to direct lending.”

BMO Harris taps new real estate lending chief

John Petrovski once heated up fuel oil to 950 degrees as a researcher in the energy industry. Now he's keeping an eye on the temperature of commercial real estate markets.

Mr. Petrovski, 58, recently was promoted to managing director and head of commercial real estate lending in the U.S. for Chicago-based BMO Harris Bank N.A. He moved into the role from the bank's chief operating officer position for commercial real estate.

In his new role, Mr. Petrovski oversees a team of 120 people and is aiming to boost new loan origination by 20 percent over the next year at the bank, a unit of Toronto-based BMO Financial Group. The bank’s commercial real estate portfolio in the U.S. was approximately $6.3 billion in the first quarter, according to a bank spokesman.

BMO has been an active financier during the local real estate recovery. It served as a lead lender for the New City apartment-retail development on the North Side and joined other banks in financing construction of the Maxwell, a South Loop shopping center, and redevelopment of the Lakeshore Athletic Club into luxury apartments.

Now, Mr. Petrovski must compete to find deals during what he calls the “middle innings” of the real estate cycle in the Chicago area and other markets where BMO is active.

“Generally, coming out of the downturn, there's pent-up demand for prudent new supply — pre-leased office, pre-leased retail, some new apartments,” he said. “So I'd like to continue to do more of that.”

Retail and office projects are likely just in the fourth inning of the cycle, he added, using the baseball metaphor, but apartments are further along, in the fifth or sixth.

“We're probably going to do a bit more slower volume of new apartments as we kind of digest the ones we've done and be a little bit more selective going forward,” Mr. Petrovski said.

A Chicago native, Mr. Petrovski has a bachelor's of science degree in chemical engineering from the University of Illinois at Urbana-Champaign. After college, he spent two years as researcher for Amoco Oil Research in Naperville before going back to school to study law at the University of Michigan, earning a degree from the school.

Mr. Petrovski then returned to Chicago, where he worked for the predecessor firm of what's now Katten Muchin Rosenman LLP. He later took legal and executive roles with lender Heller Financial during a 14-year stint with the firm, and served as a group president at Merrill Lynch Capital in Chicago for six years, overseeing $5 billion in commercial real estate loans and 80 employees.

He then worked as president of Picerne Capital and spent two years at the Federal Deposit Insurance Corp., focusing on bank loss-share monitoring and other projects. In April 2012, he joined BMO Harris as its chief operating officer. Mr. Petrovski takes over his new position from Dan Hampton, who is now based in Indianapolis as managing director for commercial real estate sales.

In a recent interview, Mr. Petrovski discussed real estate lending in the current market. Here are excerpts from that discussion:

Crain's: You have lent into the apartment market downtown — I'm thinking of the Lakeshore Athletic Club loan, for example. Are you worried about an oversupply or even a glut in the Chicago market?

Mr. Petrovski: Worried would be strong, but I would say we're mindful of it. So we watch new supply rigorously and we watch supply/demand and lease-up, and watch for concessions to creep in. But overall I would say that the country has good demand for new apartment supply. There is the demand. The local question is: Is there too much high-end coming on all at once? And we think that could happen, but generally I think you'll see concessions creep in, you'll see the pipeline get pinched down.

How does Chicago's commercial real estate market compare to other cities where BMO Harris is lending and doing real estate deals?
We look at market size and demographics and growth all the time. We look at supply and demand all the time. The good news about some of the smaller secondary markets is they're not being overbuilt. On the other hand, they don't have the growth that would kind of absorb new product as it comes on. Chicago is a large market, and it's got a wealthier population than a lot of cities. So there is the demand for high-end rental, for high-end shopping. There is demand for new office space and tenants that want to rent in new office buildings.

Are you seeing lending requirements loosen up as the market improves vs., say, two or three years ago?
We've seen a significant change in the capital markets approach to real estate in the last three years. Whereas three years ago there wasn't as much activity and lending volumes were still low, today, lending volumes and transaction values and transaction activity is back to '05-'06 values. We're not yet back at the '07 frothiness but we're at a healthy volume. We see a healthy amount of competition from other lenders and sometimes that encourages us to increase our advance rates or compete more on spread.

After a long career in the private sector, you spent almost two years working for the FDIC right after the biggest real estate downturn in decades. What did you take away from that experience with regard to real estate lending?
I've been on both sides now, in the bank and in the government, and I'd say what's come out of my experience is a renewed appreciation for what I call loan structure. And by loan structure what I mean is, (Do) you have an appropriate amount of equity in the deal? Do you have loan covenants, that if the property performance starts slide sideways can you trap cash to protect the property? I think appropriate advance rate, appropriate structure and appropriate monitoring are all things the FDIC wants to see. Likewise it's what the bank wants to see.

Triangle's commercial real estate industry riding five-year highs

North Carolina - The Triangle commercial real estate market finished out the first quarter 2014 in a much better position than it’s seen in the last five years, according to results from the first quarter 2014 SPACE survey report that will publish May 2 in Triangle Business Journal.

Overall vacancy for office buildings in Wake, Durham and Orange counties fell to 15.7 percent overall in the first quarter, the market’s lowest vacancy rate since late 2008, and down from 16.2 percent in the fourth quarter 2013.

The more highly coveted Class A office buildings dropped to a 10.3 percent vacancy rate from a rate of 11.9 percent in the fourth quarter.

The highlight of the quarter was theLenovo technology company’s negotiated deal in March to lease both of the vacated Ericsson buildings on Development Drive in Research Triangle Park, effectively erasing 455,000 square feet of vacant office space in the region.

It’s the first time since the late 1990s that the RTP submarket has had a Class A vacancy rate in the single digits with a rate under 8 percent, says Ed Pulliam of CBRE-Raleigh and a member of the SPACE committee.

“These are really telling numbers for our office market,” he says.

However, the expiration of FHI’s 147,000-square-foot lease at Headquarters Park in Durham, after FHI relocated to a new building in downtown Durham, leveled the absorption numbers a bit in the first quarter.

Strong activity in the Triangle office market trickled into the flex, warehouse and retail leasing markets, which also posted positive data trends in the first quarter.