Local Developer Reinvigorates the CMBS Market

The CMBS market isn't completely dead after all. While many keen real estate minds have been pondering about the next machinations of the CMBS market, one local developer and private equity group has been taking advantage of its premature demise. Keystone Property Group, based in Bala Cynwyd, recently refinanced Keystone Summit Corporate Park, previously home to Ericsson's (the Swedish telecom manufacturer) Pennsylvania headquarters.

Keystone took out $53.5 million, including a $41.5 million first mortgage from Deutsche Bank AG, and a $12 million junior loan from Pembrook Capital. According to Matt Sigel, Keystone's chief investment officer, Deutsche Bank plans to pool this loan with loans made to other borrowers, making it the first multiple-borrower CMBS offering in almost two years. Could this news spark more CMBS offerings, providing a vital source of credit to the thousands of property owners with a need to refinance maturing debt over the next several years?

Hayden Pioneers New Twist on Tried Investment Strategy

Every real estate fund is looking to, or has previously raised, a ton of cash to take advantage of distressed real estate assets. Every wealth manager looking to deploy capital in the real estate spectrum looks for the best operator to give control to. Credit Hayden Real Estate Investments and local wealth manager Miller Investment Management, both based in Conshohocken, for developing a new twist on standard protocol.

In a story first broken by Joe DiStefano of the Philly Deals blog, rather than simply supplying the capital for Hayden's $100-million real estate fund, Miller is "supplying our share of the investment analytics, as well as some core clients." Rather than acting as an overbearing investor, demanding report after report, Miller will act more as a partner in the traditional sense. This way, "A lot of good people will be looking at each deal," said H. Scott Miller.

Traditionally, real estate funds and institutional investors do not have the luxury of such a relationship. Institutional money has partnerships with many different operators as a way to diversify risk, and therefore cannot, nor do not want to be as hands on in the investment process. Hayden and Miller's partnership proves that close relationships can provide a competitive edge to deploying capital in real estate.

But having access to capital and a proactive partner/investor does not mean Hayden will be frivolous with their spending. "Everyone is predicting rents will go down through this year. As long as rents are going down, prices are going down, but owners are still in denial" Hayden said. "Our biggest friends are the banks and their (loan) schedules. If the seller wants $10 million and we offer $6 million, he's insulted. So we call the banker, who says, 'Bring it in, you're the highest and best price.'"

Caveat Emptor Rings True for Out-of-Town Buyers

Philadelphia as a marketplace is said to be somewhat flat. It doesn't experience the pricing highs of cyclical peaks, nor the pricing lows of cyclical valleys. Tell that to Maryland based real estate investor Bresler & Reiner Inc., whose area holdings have experienced all the volatility they can handle.

The company bought properties in the Philadelphia area, located mostly in Bucks and Montgomery Counties, between 2003 and 2006 when local property values reached their all time highs. Since then, recessionary pressures have caused massive losses for the firm's Philly assets. According to this week's Philadelphia Business Journal, of the twelve properties Bresler & Reiner bought in that time frame, nine are either in foreclosure or delinquent on loans. Ironically, the three healthy properties are all located in Fort Washington, a submarket that has historically had higher vacancy relative to many suburban submarkets.

The largest of the properties in foreclosure is Mearns Park, a 300,000-square-foot office complex in Warminster. Other area holdings suffered badly from a contracting economy and tenants jumping ship to higher quality office space for no net increase in their bottom line rent obligations.

With landlords dropping rental rates in an effort to retain tenants and maintain high occupancy, it is difficult for lower quality assets to retain their value, as evidenced by some of Bresler & Reiner's current assets' occupancy levels. All told, Bresler & Reiner currently has four office buildings, totaling over 550,000 square feet, in foreclosure, and another five buildings totaling over 750,000 square feet that are ninety days delinquent, and now in special servicing.

State of the Philadelphia Area Housing Market

With the hopes of discovering vital housing data for his own analysis, Jason Duckworth, President of Arcadia Land Company, may have stumbled upon some revealing housing trends in the Philadelphia MSA:

Philadelphia Real Estate Community Mourns One of its Own

This past month, the Philadelphia real estate community lost one of its own with the sudden passing of Hal Wheeler at only 54 years of age. A model of persistence and hard work, Hal has left a glowing legacy and a roadmap for the struggling real estate development community to follow.

Having opened a bar with his brothers in the Washington D.C. area after college, he made contacts through the bar's patrons to break into real estate development. After moving back to the Philadelphia area in the early 1980s, he teamed with his brother William to develop properties on City Avenue and in Roxborough.

In the mid 1990s Hal began assembling land on Rittenhouse Square with the hopes of one day building a majestic high-rise. Despite significant neighborhood opposition and lengthy delays, his dream became a reality in November with the grand opening of 10 Rittenhouse, a 33- story luxury condominium building at 18th and Walnut Streets, which opened to great reviews.

In 2004, he and his brother William had formed a joint venture of Wheeler Bros. Holdings and New Jersey-based ARC Properties to create ARCWheeler to construct 10 Rittenhouse. Hal's spirit will continue to live on in the Philadelphia community with ARCWheeler's plans to reinvigorate Chestnut Street with a restoration and redevelopment of the old Boyd's Theatre, which will include an entertainment center with an adjacent hotel.