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NEW YORK CITY-Savanna Investment Management LLC has acquired $120 million in debt on seven office, residential and retail properties throughout Manhattan, Long Island and Connecticut. The New York City-based real estate and development firm purchased the loans from four major Wall Street banks at discounts of up to 30%. A Savanna source tells GlobeSt.com that the company will not divulge exact locations of the properties at this time.

The transactions through the $313-million Savanna Real Estate Fund I, continue to advance the firm’s opportunistic private equity investment strategy designed to take advantage of the credit crisis dislocation by acquiring subordinate bank notes. “While there are literally hundreds of potential debt deals to pursue in this climate, we have carefully picked a handful of notes secured by the kind of real estate we typically buy, own and operate,” says Nick Bienstock, a managing partner with Savanna. “Our objective with these types of investments is to generate equity-like return with substantially less risk. Our experience as a development company gives us the security of recognizing the true value of these assets.”

The Savanna source tells GlobeSt.com that the firm believes that credit for commercial real estate transactions will become increasingly scarce in the near-term, which will lead to additional debt buying opportunities for two reasons. “One main reason has to do with the ‘legacy/pre-crunch’ loans that banks are still holding,” the source says. “In particular, there are a few large investment banks who have not sold a lot of debt since last August whereas other banks were pushing hard to move debt off of their books by year-end 2007. One of the reasons that some banks held onto debt while others sold is that different banks are regulated differently, and the commercial banks were forced to recognize problems sooner than some of the investment banks. Another reason some banks held onto their debt is that they simply thought things would get better and that they had the staying power to wait until the credit markets improved, which has turned out not to be true.” The source continues that “our sense is that the banks that held onto loans with the hope that things would get better–i.e. credit would become more readily available–are now realizing that this is not the case, and are now looking to sell because they are getting capital calls from their line providers.”

The source notes that a second main reason they believe credit scarcity will lead to additional debt buying opportunities has to do with refinancing/maturity default. “As loans that were originated over the past couple years mature over the next 12 to 18 months, borrowers are going to be faced with the prospect of investing additional equity or facing default simply because lenders have reduced advance rates,” the source says. “Inevitably, there will be borrowers who will not be able to refinance their properties with the same amount of debt and who do not have the equity necessary to make up the shortfall. Since banks are not set up to own real estate, our sense is that banks will look to sell these types of troubled loans.” The source point to Harry Macklowe as just “one example of a borrower caught in this situation, but there are many others across all asset classes, markets and investment size.”

The firm recently closed Savanna Real Estate Fund I to investors and plans to acquire approximately $1 billion in new investment and development opportunities throughout the Northeast and mid-Atlantic states targeting value-added office, residential, industrial, retail, land and development deals, as GlobeSt.com reported in January. The fund focuses on direct acquisitions for its own account, as well as selective joint-venture equity and mezzanine debt investments with third parties.

The fund already controls two major development sites adjacent to transportation hubs, and is currently building a 100,000-sf residential rental and retail building at 31st Street and 8th Avenue, across the street from Madison Square Garden and the Farley Post Office/Moynihan Station project, in the heart of the Penn Station redevelopment corridor.

The firm’s recent sale of the Bristol Business Center in Bristol, CT for $60.5 million was the largest real estate sales transaction ever in Bristol, as GlobeSt.com reported. The 1.2-million-sf industrial warehouse/distribution facility at 780 James P. Casey Rd. was acquired in November 2006. “Our successful leasing strategy was able to dramatically increase the value of this asset in a relatively short period of time,” said Shep Wainwright, a principal of Savanna Investment, in GlobeSt.com’s February article. “We saw an opportunity to acquire a property that could produce significant return on investment in a short time via an aggressive redevelopment and leasing strategy. Even in a tumultuous market, this value-added strategy has produced an outstanding return for our investors.”

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