The only true wisdom is in knowing you know nothing.
Socrates 469 BC
By Mark Heschmeyer April 8, 2015
With more money chasing fewer deals, institutional investors are increasingly turning to joint ventures (JVs) as a popular alternative ownership structure for selling, buying and developing commercial real estate assets. An abundance of deals for all property types have been announced in the last few days involving major institutional capital sources and owners.
“Some investors are having to get creative by moving away from their more traditional investment models or expanding their parameters, property types, and markets to try and place money out the door,” said Paul Carr, DTZ senior managing director, who heads the firm’s capital markets team. “And more are looking at different structures to get money out, such as joint venture models.”
Because there are more buckets of money competing for fewer deals, investors are pursuing dual track strategies, said Carr. Traditional value-add type investors now may have a core/core-plus fund, and vice versa, in order to participate in deals and allocate all the money they have for real estate investment.
This has resulted in some unusual pairings teaming up on new ventures. For example, Bascom Group, which has developed more than 63,000 apartment units, announced a new joint venture last week with a newly formed capital group in a value-add office partnership.
Harbor was launched earlier this month by Joon Choi, Justin Loiacono, and Paul Miszkowicz, who have 25 years of combined experience in the Southern California commercial real estate markets with such firms as BlackRock, AEW Capital, Bixby Land and Bascom.
Bascom and Harbor Associates Ventures said they will target value-add office and mixed-use opportunities primarily in Southern California. Harbor Associates plans to provide the JV with $250 million to invest over the next two years.
Bascom has been partnering with a wide range of capital sources lately. Last month, it teamed with certain funds managed by Carlyle Realty Partners to acquire a 220-unit apartment community in Emeryville, CA for $45.1 million.
Early last month, Mesa West Capital provided $27.4 million of financing for a venture between Bascom and Oaktree Capital Management to acquire the 288-unit Villa Serena apartment property in Henderson, Nevada. The acquisition was the seventh made by the Bascom/Oaktree venture, which launched last year.
In another strategy national insurance company backed USAA Real Estate Co. is going around the country teaming up with regional operators to develop a pipeline of future deals.
Its first such JV is with Brackett Flagship Properties, a Charlotte, NC-based investment and management firm formed in 2010 from the merger of Brackett Company and Flagship Capital Partners. The USAA/Brackett joint venture plans to acquire or develop health care-sector properties, particularly medical office and outpatient facilities throughout the southeastern United States, with the insurance giant providing financing and Brackett providing asset and property management as well as leasing services. The venture initially includes the acquisition of a portfolio of nine properties totaling 315,000 SF, located in eight cities throughout North and South Carolina, and Northeast Tennessee.
“Partnering with USAA RealCo represents a tremendous opportunity for us to expand and enhance the range of services and financial solutions that we can offer our health care clients” said Charles Campbell, managing partner of Brackett Flagship Properties. “RealCo’s outstanding reputation, depth of resources and commitment to healthcare real estate make this partnership the perfect fit for Brackett Flagship.”
USAA said the new JV represents a “programmatic deployment of capital with a strategic partner focused on the health care sector,” which it believes has strong growth potential by becoming a “preferred provider of real estate solutions for both independent physician practices and leading health systems in this region of the country,” said Len O’Donnell, president and CEO of USAA RealCo.
O’Donnell went on to say that the firm anticipates replicating this program in other regions throughout the U.S. as the big real estate investor seeks out local partners to help it source deals.
Meanwhile, experienced U.S. operators are tapping the continued influx of foreign capital to fund new projects.
Tishman Speyer today said China Life Insurance (Group) Co. and Ping An Insurance Co. will co-invest in developing Tishman Speyer’s waterfront site at Pier 4 in Boston’s Seaport District. The Pier 4 project represents the first time that China Life and Ping An, China’s two largest insurance companies, have made equity investments in U.S. real estate. The deal also marks the first time they have co-invested in real estate outside of China.
Tishman Speyer, which acquired the development site in December 2014, will serve as general partner and manage the day-to-day development of the project.
“Tishman Speyer has been an active investor and developer in China for more than a decade,” said Tishman Speyer Co-CEO Rob Speyer. “In that time, we have forged strong, productive relationships with both China Life and Ping An. We are really pleased that they have chosen to join us on this project.”
In a statement, China Life called the deal with Tishman a “good start” for its property investments in America and said it plans to expand its real estate investing in the U.S.
Tishman Speyer recently announced plans to build a 13-story commercial building at the waterfront location, consisting of approximately 373,000 rentable square feet, primarily for office use along with a nine-story, 100-unit luxury residential condo building and a three-level below-grade parking facility. Both buildings will include ground floor retail/restaurant space, and the site plan also includes a new one-acre public park. Construction is scheduled to begin in the fourth quarter of 2015, with completion of both new buildings set for 2018.
DTZ’s Carr also noted that joint ventures are becoming popular outside of one-off property deals. Institutional players are increasingly teaming up together on portfolio acquisitions as multiple parts of the capital stack.
The kind of deal was evident last week when Starwood Capital Group, a leading global private investment firm, put together a joint venture of Starwood Global Opportunity Fund X, Vanderbilt Partners and Trinity Capital Advisors to acquire a portfolio of Class A suburban offices properties from Duke Realty Corp. in an off-market transaction valued at $1.1 billion.
Totaling 6.9 million square feet, the portfolio comprises 62 assets in Raleigh, NC, Nashville, TN, St. Louis, MO, and South Florida. The transaction also includes 57 acres of undeveloped land.
In a similar move Washington Prime Group entered into a joint venture with O’Connor Capital Partners to own five of the malls it Washington Prime acquired in its $2 billion buy earlier this year of Glimcher Realty Trust. O’Connor will have a 49% ownership interest in the joint venture and WP Glimcher is expected to receive net proceeds of $430 million.
The joint venture structure is also being used to spread out the risk in new development projects as well.
Ridge Development is breaking ground this quarter on two spec industrial buildings on 47 acres in north Fort Worth. The Railhead Industrial Park development is owned by a joint venture between Ridge Development and LaSalle Investment Management.
Lastly, existing property owners are looking to bring on joint venture partners to recapitalize their holdings while at the same time hanging on to a piece of the ownership.
Bob O’Brien, chief financial officer of Forest City Enterprises, said his firm is looking at that option on a number of properties, including a potential sale or joint venture of 625 Fulton, a development site at its MetroTech Center Campus in Brooklyn; the potential sale or a joint venture of the majority of its remaining downtown Cleveland office assets and the adjoining retail at Tower City Center; a potential transaction for its Illinois Science and Technology Park near Chicago; and a legacy portfolio of assets consisting of 33 apartment communities and four suburban office buildings.
Forest City said it is reviewing the best option for the properties and hope to make a decision over the next couple of months.
DJM Capital Partners employed that strategy this week when it sold a 75% interest in Bella Terra Shopping Center in Huntington Beach, California, to Prudential Real Estate Investors for a still undisclosed amount.
DJM Capital Partners will continue to lead the property management and leasing at the site, which has evolved into one of Southern California’s most successful outdoor lifestyle centers.
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