NEW YORK CITY-The second quarter of this year posed especiallyrough sledding for IPOs. In May and June, as the European debtcrisis roiled markets globally, more than 30 companies worldwidepostponed their offerings or withdrew them outright, according toBloomberg. Among the companies making—and shelving—IPOs this yearhave been five REITs, two of which were canceled.

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One that successfully crossed the finish line wasHudsonPacific Properties, a REIT growing out of HudsonCapital LLC that raised $218 million in late June in an IPO pricedwithin its range of $17 to $19 per share. A complex transactionthat entailed shareholders Farallon Capital Management and MorganStanley contributing properties as part of the offering, itreportedly was only the second REIT IPO to price within its rangesince 2007. David Lazarus, senior managing director of EdgeRockRealty Advisors, which advised Hudson Pacific, tells GlobeSt.comthe new REIT’s experienced management team and its willingness tostick to its guns helped bring about the IPO’s success.

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“What Hudson getting done, and other deals not getting done,tells you is that the market is choosy,” says locally basedLazarus, who previously spent 12 years as a managing director withLehman Brothers’ global real estate group. “The market isexercising discretion over what deals it thinks makes sense.”

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The past several months have shown that some of the assumptionswhich formerly held sway, such as “massive assets being sold at adiscount, and lenders owning properties en masse,” were based on“looking at the current market through the prism of what happenedlast time,” says Lazarus. “The reality is that while historyrepeats itself, it doesn’t always look exactly the same.”

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A fair number of the REITs that have stumbled in attempting tosell shares have been blind pools. “Investors just don’t see thevalue proposition right now in funding those vehicles, particularlywhen you have the established, seeded REITs with a meaningfulability to raise capital and take advantage of those sameopportunities,” Lazarus says.

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By contrast, Los Angeles-based Hudson Pacific came to the IPOmarket with a ready-made portfolio of assets, including six officeproperties in Northern and Southern California and a pair of mediaand entertainment properties, Sunset Gower Studios and SunsetBronson Studios, both in Hollywood. The REIT’s West Coast focus“certainly played a role” in the IPO’s success, Lazarus says. “Forsome time now, people have felt more comfortable investing in thetwo coasts.”

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Also, says Lazarus, Hudson’s management team, including CEOVictor Coleman and president Howard Stern, both formerly of ArdenRealty, were proven public-company executives. “That changes thewhole level of the conversation when you sit down to have ameeting” with potential investors.

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Another plus was the team’s ability to craft a winning story.“One of the things the banks were very concerned about was themedia and entertainment exposure” in the Hudson Pacific portfolio,Lazarus says. “Why were they concerned? Very simply, because ithadn’t yet been sold in the public markets. Bankers generally lookto precedent, for good reason. But what we had imagined when Ibegan working with Victor over a year ago was that we could sellthese assets in the public market and the market would acceptthem.”

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Contrary to what some observers may have expected, “the mediaassets became a feature of the deal rather than something investorsmight have had to work through,” says Lazarus. Owning a pair ofHollywood studios totaling 900,000 square feet helped positionHudson Pacific as unique. “We were able to spin it into apositive.”

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Given the volatility in the market, the timing on the IPO was“tough,” Lazarus acknowledges. Part of the challenge wasdetermining when do we go amid all of the time pressures you’reunder in trying to structure these things to begin with. That isall stuff you accomplish through experience, feel and convictionabout telling your story. And with three book-runners on thedeal”—in this case, Bank of America Merrill Lynch, Barclays Capitaland Morgan Stanley—“it’s often very hard to get a uniform opinion.Eventually they all agree, but getting there is challenging.”

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Yet the three underwriters were eventually won over. Often,multiple underwriters will gravitate “toward the lowest commondenominator,” Lazarus says. “If Bank A says it will only go out at$16 and Banks B and C are at $17, if you want Bank A to come alongyou’d better go out at $16.” Instead, the Hudson Pacific executivestook the position that the deal would proceed on their terms. “Whatthe deal ultimately came down to was their conviction in saying,‘we’re going to tell this story on the road and be able to sellthis deal at this valuation,’” Lazarus says.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.