Master Development, GE Unit Form $55M JV

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NEWPORT BEACH, CA-Locally based Master Development Corp. and GE Asset Management have formed an unusual joint venture that gives Master Development broad discretion in investing $50 million of equity from GE in industrial projects that Master Development will choose and execute. Bryan Bentrott, EVP of Master Development, tells GlobeSt.com that the venture gives MDC “discretion to invest the money within a given set of rules,” an arrangement that is extremely rare in the world of joint ventures.

Bentrott explains that because of the broad discretion it provides to Master Development, the new venture differs significantly from typical joint venture projects by MDC and other developers, who typically must go to a JV partner for approval before they can act.”By buying on an all-cash basis and having discretion over the investments, we can spend our time focusing on finding the deal and executing the business plan,” Bentrott says.

Master Development will be a 10% co-investor in all of the new joint venture’s projects, meaning the Newport Beach firm will invest about $5 million along with GE’s $50 million. At a typical ratio of 30% equity and of 70% debt for the kinds of projects the two will be pursuing, that works out to a total of about $180 million to $190 million of capitalization for the deals.

The venture’s primary focus will be land sites larger than seven acres and existing properties valued at more than $10 million. Bentrott says the JV hopes to find office and industrial properties priced at $10 million to $30 million that require renovation and/or offer the opportunity for condominium conversion.

Although MDC has enjoyed success co-investing with institutional partners over the past 10 years, this new venture “will enable us to focus on acquiring value-added and opportunistic real estate without forming individual joint ventures,” comments Bruce McDonald, president of MDC. According to Bentrott, the new venture expects to invest its capital over the next two years, concentrating on value-added projects throughout Southern California.

Master Development has been very active in the Inland Empire, so the new JV will likely be active there, but Bentrott believes the venture can also find the types of deals it’s looking for throughout the Southland, including Los Angeles County. The venture will probably develop about 60% of its properties with an eye toward selling them, and will likely hold the remaining projects for some time.

MDC will be looking for “any kind of value-added opportunity” and is confident that it can spot the value because of its background in developing value-added projects. “One of the things that distinguishes us as a buyer is that, as contractors, we have a pretty good understanding of what it costs to build,” Bentrott points out.

GE Asset Management, the manager for General Electric Co.’s primary US pension plan, is a global asset manager wholly owned by General Electric Co. Master Development Corp., which McDonald and Bentrott formed in 1994, has completed the construction of167 buildings in 23 projects totaling 5.8 million sf and $283 million in costs. The joint venture between the two firms was brokered by HFF Securities in Los Angeles.