BEVERLY HILLS, CA-BH Properties has launched a campaign toacquire underperforming retail and industrial properties and hasarranged an eight-figure unsecured line of credit with Wells FargoBank to fund the acquisitions. BH Properties EVP Steve Jaffe tellsGlobeSt.com that the company, which hasn’t made any acquisitions inabout two years, is targeting properties in the Inland Empire,Phoenix and Las Vegas. Jaffe calls the unsecured line of credit "aconcept that has been unheard-of during the past 18 months" and "atangible sign of economic recovery," adding that BH is "cautiouslybullish on today’s market."

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BH has already launched a campaign to acquire retail stripcenters in Phoenix, which it will likely follow with a similarcampaign in Las Vegas and then the Inland Empire, Jaffe says. Interm of industrial properties, the company is looking in those samemarkets and favors warehouse/industrial space―thecompany's portfolio is about one-third industrial, one-third retailand one-third office.

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Jaffe explains that the BH Properties acquisitions program willbe something of a departure from the model it has traditionallyfollowed, in which it typically bought vacant buildings, obtainedbridge financing and then stabilized them, usually over a period ofabout 18 months. Although that model worked well for many years,changes in the lending markets have made it difficult to placebridge financing on empty buildings, so BH is now looking forproperties that are 30% to 50% occupied, meaning there is some cashflow, Jaffe says.

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Historically, BH has looked at buying vacant big boxes withstrip centers attached, but today, he says, "It's hard to backfilla 100,000-square-foot big box in this market, even if you cut itup, which is what we historically did." On the other hand, he says,"If we find a strip retail center that has managed to survive thepast couple of years, it is probably pretty good real estatebecause it doesn't sink or swim on the basis of the occupancy ofthe nearby big box."

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At the same time, however, those strip centers are very hard tofinance and are typically owned by smaller operators who may besuffering some significant vacancy, Jaffe points out, so BHbelieves it will be able to buy at favorable prices. As Jaffeexplains, BH has historically been able to offer sellers speed andcertainty of closing, which is even more important in a market liketoday's where financing remains difficult, and the new line ofcredit will help BH to offer that certainty of a quick close.

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BH was able to obtain the line of credit thanks to alongstanding relationship with Wells Fargo, "which understands ourinvestment program," Jaffe says. "We spent a lot of time with them,bringing them up to speed on what we think we want to do and how wewant to go about it, and we see them as a partner."

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Although its portfolio of 85 properties in 17 states nowstretches to the Eastern US, BH has been actively marketing many ofits East Coast properties, with the idea of redeploying the capitalin western markets. The company started in the West and then movedeastward as "the pricing out West was unsustainable," Jaffe says.Now, he explains, BH believes the time is right to return to thosewestern markets. In addition to the Inland Empire, Phoenix and LasVegas, the company also likes places like Salt Lake City and somemarkets in Texas.

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BH sees a lot of opportunity in its targeted markets, accordingto Jaffe, who says that although those markets have been hard-hit,they are areas where the population is growing and they hold thepotential for job growth once the economy recovers. The InlandEmpire region of Southern California, for example, "always seems tobounce back," he says.

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Jaffe explains that BH stopped buying when it could not getdeals to pencil out and because the company was anxious about wherethe market was heading. Instead of buying, it focused inwardly onits portfolio, for which occupancy increased last year. BHhas not closed on any new deals under its new investment program asof this writing, but Jaffe says that when the company finds theright deals, it will move quickly. "We haven't bought anything intwo years, but when we are a buyer, we are fairly aggressive andfast," he says.

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