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DALLAS-Two locally based powerhouses, firmly focused on distressed and value-add deals, are mounting unrelated offensives for capital drives totaling nearly $1.3 billion. One fund raising could close out today and the other has yet to begin.

Behringer Securities and Behringer Harvard Opportunity REIT II Inc. yesterday filed an SEC registration for a $1-billion offering that mirrors Opportunity REIT I. Meanwhile, Highland Capital Management LP marked its second trading day as an IPO in a bid to raise $243.52 million. Sources tell GlobeSt.com that Highland Distressed Opportunities Inc., trading as HCD on the NYSE, could hit its goal today. Behringer Harvard and Highland executives can’t discuss the fiscal moves due to SEC regulations.

Highland, structuring the plan as a business development corporation, is selling 17 million shares for $15 apiece. Behringer Harvard, as it moves ahead with the SEC filing, plans to sell up to 100 million shares for $10 each and 25 million shares for $9.50 apiece.

The Highland IPO is seeded by a $124-million warehouse of loans to a broad-based business spectrum, including well-known developers of commercial real estate, hospitality companies and retail chains. Highland is expected to close soon on another $26 million of loans, according to its SEC filing.

Under its terms with the Bank of Nova Scotia, Highland has until March 15 to acquire the warehouse assets. The bank is acting as Highland’s investment adviser, loaning Highland $4 million at 4.87% annual interest on the unpaid balance and kicking in $5 million to buy 333,333.33 shares. Highland put up $9 million in collateral when it inked the warehouse arrangement with the Bank of Nova Scotia. Highland’s Patrick H. Daugherty, partner and senior portfolio manager, and James D. Dondero, managing partner and president, initially will oversee the portfolio.

Sources say Highland hasn’t earmarked specific allocations by industry sector. The loans are being viewed as “white knights” or “opportunities” more so than “bail-out” capital for cash-strapped companies.

The Highland IPO is being underwritten by a Who’s Who of Wall Street. Taking 4.51 million shares each are Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Inc. and Wachovia Capital Markets LLC. AG Edwards & Sons Inc. has dibs on 1.44 million shares; Banc of America Securities LLC, 722,500 shares; and Deutsche Bank Securities Inc., Oppenheimer & Co. Inc. and Stifel, Nicolaus & Co. Inc., 425,000 shares each. The offering has a 2.55-million share over-allotment option that must be exercised within 45 days. If the full option is exercised, the IPO would ring up $293.25 million; underwriting discounts and commissions would jump to $13.19 million from $11.47 million; and the company proceeds would be $280.05 million instead of $243.52 million.

In its SEC filing, Highland’s officers say “current market conditions have presented abundant opportunities to invest in distressed markets.” Not only will the opportunity “continue to expand for these types of investments in the future,” but it’s predicted there will continue to be “a significant imbalance between the ongoing supply of distressed securities as compared to the amount of capital actively allocated to such investments.”

The investment plan targets distressed situations, but not necessarily distressed companies since loan criteria require profit margins and veteran management teams. Highland’s exit strategy is based on its ability to loan to companies “that it believes will provide a steady stream of cash flow to repay loans and/or build equity value” as well as firms with future cash flows offering “attractive exit possibilities,” including primetime M&A candidates.

Behringer Harvard’s exit strategy for Opportunity REIT II is just like the $476-million Opportunity REIT 1, launched in November 2005 with a three- to six-year proposed term. According to an SEC filing, Opportunity REIT 1 is set to wind down Sept. 20 or as soon as all shares are sold–effectively opening the door for Opportunity REIT II to lift off. The exit strategy, in both cases, can take three courses: a stock exchange listing, merge or sell accumulated assets. Behringer Harvard’s registration set the pricing, but gave no indication which course will be favored. What is certain is the filing started the clock ticking on a two-year window to execute the plan for Opportunity REIT II, which will take the executive team most of this year to secure necessary federal approvals.

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