Archive for the ‘Vertical: Real Estate’ Category

Starwood to Raise $2.8 Billion to Invest in Distressed Real Estate Debt

Thursday, April 1st, 2010

Starwood, the commercial real estate investment firm started by Barry Sternlicht is raising approximately $2.8 billion purchase commercial real estate debt  during the biggest commercial real estate dislocation of the decade.   The Starwood Global Opportunity Fund VIII will target property and distressed debt.  Recently, Starwood’s second hospitality fund also raised $1 billion.  Sternlicht has been extremely bullish on specific deals in the market because of his close relationship with the FDIC.  He believes that most regional banks are essentially bankrupt, and this is the perfect opportunity to scoop up cheap real estate debt at 50 cents to the dollar.

According to Mr. Keehner of Bloomberg, “Starwood Capital Group LLC, the investment firm founded by Barry Sternlicht, finished raising capital for two funds totaling about $2.8 billion that will invest in real estate.

The Starwood Global Opportunity Fund VIII, which will target distressed debt and property, took in more than $1.8 billion, according to a person familiar with the effort. The Hospitality Fund II, which will invest in hotels, attracted almost $1 billion, said the person, who declined to be identified because the deal is private.

Starwood had previously raised about $10 billion of equity for 11 funds and other investments, according to documents from JPMorgan Chase & Co., which helped the firm find investors. Starwood is leading a plan to bring Extended Stay Hotels Inc. out of bankruptcy and purchased loans in October from failed Chicago-based lender Corus Bankshares Inc. as the real estate market reels from a 40 percent drop in commercial property values from its 2007 peak.

“Raising new capital in this environment speaks to the team at Starwood and the deals they’ve been able to get done,” said Dan Fasulo, managing director of New York research firm Real Capital Analytics Inc. “Barry and his team are one of the few that have been able to put money to work in the past few months.”

Starwood Global Opportunity Fund VII, which closed in 2005 with commitments of $1.48 billion, was up 3 percent as of January, according to the person. Starwood Capital Hospitality Fund I, which closed in 2005 with commitments of $900 million, was up 10 percent, the person said.

FDIC Loans

Starwood plans to invest much of the new opportunity fund’s capital in the U.S., targeting distressed borrowers, lenders and banks taken over by the Federal Deposit Insurance Corp.

“Everyone knows of somebody who’s in trouble with something in real estate today,” Sternlicht, 49, said on a Feb. 11 call with potential investors, a recording of which was obtained by Bloomberg News. “It’s a great opportunity for us.”

Starwood, based in Greenwich, Connecticut, led a group in October that won part of a $4.5 billion portfolio of real estate assets that belonged to Corus before regulators took over the Chicago-based lender in September.

Starwood and its partners outbid their nearest competitor for the portfolio by more than $100 million, or 20 percent, people familiar with the sale said at the time. Sternlicht said on the call that Starwood is “spending a lot of time with the FDIC.”

Most regional banks in the U.S. are “effectively bankrupt,” Sternlicht said, providing an opportunity as $1.2 trillion of real-estate debt matures over the next four years.

Carlyle Hotel

Starwood Capital may also acquire distressed properties by taking positions in the debt, said Sternlicht, including the Carlyle Hotel on Manhattan’s Upper East Side. The firm bought mezzanine loans backed by the hotel for 50 cents on the dollar around January 2009, he said.

The Carlyle, owned by Rosewood Hotels and Resorts LLC, has seen cash flow drop since Starwood Capital bought the note, Sternlicht said.

“We’re just hoping they trigger a covenant,” Sternlicht said of the loan, which matures next March, adding that his firm could wind up owning the hotel for $400,000 per guest room, or about 30 percent of replacement cost. “We take over management; that would be a windfall.”

Sternlicht is also trying to take over ailing Las Vegas casino-owner Riviera Holdings Corp. four years after a bid he backed was shot down by shareholders.

Riviera Deal

Starwood Capital, along with “some friends,” bought control of Riviera’s first mortgage for about 50 cents on the dollar and is leading creditors negotiating a prepackaged bankruptcy, Sternlicht said. Riviera, which owns a Colorado casino in addition to the 55-year-old Las Vegas resort, defaulted on a $245 million loan in February 2009.

“We are now working to take the company through a pre- pack,” Sternlicht said. “It’s going very well. We lead the creditors’ committee there.”

Starwood Capital could own Riviera’s 26-acre resort for “about $5,000 a room, which is less than the cost of the furniture,” Sternlicht said on the call, without saying how much Riviera debt it held. “I’m thinking of it as a long-term parking lot. We’re just going to hold it and have very little invested in the deal.”

Starwood Capital is also working on a restructuring with “a multi-billionaire who has a large real estate portfolio,” Sternlicht said on the call. He didn’t name the person.

“Those are exciting opportunities when you have few competitors,” he said. “Most of our competitors are mortally wounded, especially the Street.”

Sternlicht founded Starwood Hotels & Resorts Worldwide Inc. in 1995 and was that company’s chairman and chief executive officer for almost a decade. Brands include the W, Sheraton and Westin.

He raised $810 million through an initial public offering of Starwood Property Trust Inc., a REIT. Shares have since dropped 3.5 percent.”

According to USA Today, “Starwood Hotels & Resorts opened it 1000th hotel  – the Sheraton Qiandao Lake Resort located on China’s Qiandao Lake.

“This hotel is emblematic of both our history and our bright future,” says Frits van Paasschen, CEO of Starwood, in a statement, adding Sheraton was the first international hotel to open in China in the early 1980s.

Starwood also says it plans to open 300 more hotels in the next three to four years.  “For the first time we have more hotels outside the U.S. than inside. And there is no more fertile ground to grow than in China where we plan to double our footprint to 100 hotels by 2012,” van Paasschen says.

In 2010, Starwood expects to open 80 to 100 more hotels, and about 70% of them will be outside the U.S.

In China, Starwood will open more than 20 hotels this year. In India, another growing market, Starwood has 26 hotels and plans to increase the total by 60% by the end of 2012.”

General Growth Properties Getting Multiple Bids, Pershing Square Capital Involved

Friday, March 12th, 2010

In our third article on General Growth Properties, one of the largest mall owners in the United States, Pershing Square Capital Management and Fairholme are working to increase Brookfield’s bid to purchase a stake and provide capital for the firm.  As mall attendance fell through the recession and it became difficult to pay back commercial real estate debt, it was feared that General Growth would go into bankruptcy and had to be restructured.  Recently, General Growth received a $10 billion all cash bid from Simon Properties, which it turned down because it felt the valuation was too low!

According to Mr. Taub of Bloomberg, General Growth Properties Inc.’s biggest debt and equity holders will offer to jointly invest $3.93 billion in the mall owner to help bring the company out of bankruptcy, according to a person familiar with the plan.

Fairholme Capital Management LLC, General Growth’s largest creditor, and Pershing Square Capital Management LP, the biggest shareholder, are working with Toronto-based Brookfield Asset Management Inc., said the person, who asked not to be identified because the talks are private. The proposed deal would add to Brookfield’s planned $2.63 billion investment and would pay unsecured creditors in full in cash, the person said.

The cash payment matches a provision of a competing bid by Simon Property Group Inc., which has offered to buy its biggest competitor for more than $10 billion and pay all unsecured creditors. Chicago-based General Growth rejected that bid as too low and said last month it would split itself into two companies to exit bankruptcy, with the investment from Brookfield.

“They realized their original deal was weak compared to Simon’s,” David Fick, an analyst with Stifel Nicolaus & Co. in Baltimore, said of Brookfield. “They have to show an equivalent deal.”

Brookfield’s new plan is being considered by General Growth’s board. The proposal calls for Bruce Berkowitz’s Fairholme Capital and William Ackman’s Pershing Square to buy about 380 million new General Growth shares at $10 each, with 72 percent being purchased by Fairholme and the balance by Pershing Square, said the person familiar with the plan.

Share, Debt Offerings

Those investments would combine with 250 million shares Brookfield would buy, $1.5 billion in new debt Brookfield is raising, and a $250 million rights offering for a new company, General Growth Opportunities. Brookfield will backstop $125 million of that sale, and Fairholme and Pershing Square will backstop the rest, the person said. Combined, more than $8 billion would be raised.

Berkowitz is unable to discuss the plans until he files with the U.S. Securities & Exchange Commission, said Janice Aman, a spokeswoman for Fairholme with outside firm Mount & Nadler Inc. Ackman declined to comment.

David Keating, a General Growth spokesman, had no immediate comment. Denis Couture, Brookfield’s senior vice president for corporate affairs, declined to comment. Simon Property spokesman Les Morris said he had no immediate comment.

Largest Shareholder

Fairholme would be General Growth’s largest shareholder with more than 30 percent of the company’s stock, followed by Brookfield with about 30 percent, and Pershing Square with 17 percent or 18 percent, the person said. Ackman resigned from General Growth’s board on March 5 to make the offer, according to the person.

New York-based Pershing Square currently owns a 25 percent economic interest in Chicago-based General Growth, including 7.5 percent of its shares. Fairholme owns about $1.9 billion of General Growth debt, while Brookfield has about $500 million and Pershing Square owns about $434 million, according to the person.

Brookfield’s previous plan gave General Growth equity holders $15 a share, compared with about $9 a share under Simon’s offer. That version called for General Growth to raise as much as $5.8 billion by issuing shares and new debt and through the sale of properties.

Unsecured creditors objected to General Growth’s agreement with Brookfield, saying in a March 2 bankruptcy-court filing that the plan was too risky. Indianapolis-based Simon, in a separate filing, supported the creditors.

Market Risk

“While Simon has offered to pay unsecured creditors in full in cash, the consideration to be offered to unsecured creditors under the ‘recapitalization’ is entirely subject to market risk,” David C. Bryan, Eric M. Rosof and Emil A. Kleinhaus, Simon’s attorneys, wrote in the filing. “If General Growth does not raise enough money to pay unsecured creditors, they will be stuck with the equity securities of a highly leveraged company.”

U.S. Bankruptcy Judge Allan Gropper in Manhattan last week rejected a request by General Growth to extend control of its bankruptcy through Aug. 26, giving the company until July 15.

“I do think it is in everyone’s interest that we proceed with an aggressive timetable, one that gets us out of this case as soon as possible, so there is less risk to the creditors,” Gropper said at the March 3 hearing.

General Growth filed the largest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt making acquisitions. Under its plan with Brookfield, General Growth would split into a company owning shopping malls and another that would own buildings and land with redevelopment possibilities.

The new company, to be called General Growth Opportunities, would have holdings including six master-planned communities, New York’s South Street Seaport, and land in Hawaii, Utah and Princeton, New Jersey. The plan must be approved by the bankruptcy court.

General Growth rose 7 cents to $14.08 as of 4:15 p.m. in New York Stock Exchange composite trading. The company’s shares have gained 22 percent since the beginning of the year.

Dubai World Restructuring Underway

Monday, March 8th, 2010

Dubai shocked creditors when it decided to postpone interest and principal payments in November of 2009.  Since then, Moelis & Co. has been working with creditors to settle on repayment.  Some creditors still expect full repayment, while others would take a haircut for immediate cash. Certain assets have been “ring-fenced,” such as DP World’s port business, which may list in the UK.  By ring-fencing the asset, it will not be available for creditors.

Amran Abocar of Reuters writes: “Dubai World could put its plan to a creditor coordinating committee that includes HSBC and Standard Chartered in London this week but was being delayed by efforts to value the assets of its Nakheel unit, builder of Dubai’s palm-shaped islands, bankers said.

While some of the 97 creditors expect to see the option of full repayment on the table, others are willing to take a “haircut” in order to get some money back fast, bankers said.

“We are not willing to take a big haircut … in that case we would go back to the committee to see what our options are,” said one Gulf-based banker, who asked not to be named. “Full repayment should be an option, timing is less of an issue.”

Dubai World shocked global markets in November, when it requested a standstill on its debt repayments and said it would come up with a restructuring plan.

Dubai has said the plan would be “fair” but a plan could propose extending debt maturities and Dow Jones said creditors may get as little as 60 cents on the dollar.


“There are those banks who want to have the money immediately and take a haircut and those who can wait for a longer time,” said one banker at an Asian lender which is among the creditors.

“If one of the lenders doesn’t accept both options, they can go for a legal case. It’s in the interest of the bankers and the company there is some agreement.”

Despite those divisions, hopes of progress in the talks cut the cost of insuring Dubai’s debt against default and boosted Nakheel’s 2011 bond on Monday.

Dubai’s five-year credit default swaps (CDS) fell about 20 basis points to 488.7, their lowest level since Jan 28. They had risen as high as 654 basis points on February 15 after a report that Dubai World was mulling a two-part deal, including one that may repay lenders 60 percent of the outstanding debt over a period of seven years.

Dubai’s stock market index rose over 1 percent on Monday on hopes of progress in the debt negotiations.

“Investors are front-running a possible uptrend that could follow a Dubai World announcement,” says Mohammed Yasin, Shuaa Securities chief executive.

“This should continue for a while. Volumes are low, but it’s not that there’s no money around, just that it is waiting for an outcome (on Dubai World) to provide some clarity.”


Dubai World has ringfenced key assets from its restructuring plan including ports operator DP World, which has said it may seek a secondary listing on the London Stock Exchange.

A report on Sunday said DP World may offer new shares to shareholders and Dubai World could sell part of its 77 percent stake as it bids to become part of the FTSE 100 share index.

The move would help boost DP World’s liquidity and raise the stock’s free float shares to 35 percent.

Bankers said Dubai World’s debt restructuring plan would not include a proposal to raise capital or contain any surprises like Abu Dhabi’s last-minute bailout in December, which allowed Dubai to repay Nakheel’s maturing Islamic bond.

“It’s more of a local issue than a global issue now because the news is out, people know they want to restructure,” said a European fund manager, who used to hold Dubai World debt. “Given that they paid out on Nakheel in December, creditors will be looking for full payment on the other bonds.”

But a source familiar with the matter said last month that the Nakheel bond maturing in May was unlikely to be repaid.

But Dubai’s debt crisis is still causing ripples around the region. Moody’s downgraded seven Abu Dhabi government-related entities late last week, due to the absence of an explicit, formal guarantee of government backing.

Abu Dhabi, the wealthiest emirate in the seven-member United Arab Emirates federation and home to most its oil, dismissed the downgrade, saying it had the money to meet its commitments to the firms, especially three which are wholly state-owned.

Major creditors to Dubai World also include Bank of Tokyo-Mitsubishi, a unit of Mitsubishi UFJ Financial Group, Lloyds and Royal Bank of Scotland, Emirates NBD and Abu Dhabi Commercial Bank.”

Restructuring Document: Objection by General Growth’s Unsecured Creditors to Exclusivity

Monday, March 1st, 2010

General Growth recently turned down a $10 billion cash offer to be taken over by Simon Properties, a competitor.  The interesting aspect of this transaction was the General Growth was filing bankruptcy last year and has now refused to sell itself completely.  Instead it has planned to split itself in two and take a minority investment from Brookfield Asset Management.  The creditor committee here is objecting to another 6 months of exclusivity for the debtors.

Objection by General Growth’s Unsecured Creditors to Exclusivity

General Growth Properties Splitting in Two

Wednesday, February 24th, 2010

Many currently think that the offers General Growth Properties has received are very steep, especially since the country’s largest mall owner went through a debt restructuring last year….As a result, the company is splitting itself in two and will raise capital to ease its transition as the economy recovers.

You can refer to our first General Growth Article HERE…

According to Bloomberg, “General Growth Properties Inc. plans to split in two to exit bankrupty and will receive $2.63 billion in capital from Brookfield Asset Management Inc., according to a person with knowledge of the company’s plans.

The plan would value the shopping-mall owner at a minimum of $15 a share, said the person, who asked not to be named because the negotiations are private.

Simon Property Group Inc., the largest U.S. mall owner, offered to buy General Growth for more than $10 billion in a bid that would give equity investors about $9 a share.”


General Growth Restructuring Part 1

Sunday, December 6th, 2009

general_growth_propertiesThe 2nd largest mall owner in the U.S., General Growth, just won approval for a reorganization plan to restructure $8.9 billion in mortgage liabilities.   General Growth owns over 200 shopping malls in 44 states.  The firm also owns various office buildings across the country.   After much deliberation, the firm reached a deal with Prudential Life Insurance earlier to restructure as much as 70% of its outstanding loans.

By April of 2009, the company had issued $27 billion in debt due to a series of acquisitions.  The group’s property holding include everything from Boston’s Faneuil Hall and New York’s South Street Seaport to the Grand Canal Shoppes at the Venetian and the luxury Ala Moana Center in Hawaii.   The case # for this restructuring is 09-11977 and it is being overseen by Bankruptcy Judge Allan Gropper, U.S. Bankruptcy Court,  Southern District of New York.

In April of 2009, General growth filed the biggest real estate bankruptcy in American history.  The Ch. 11 bankruptcy was triggered after General Growth paid $11.3 billion to by commercial property developer Rouse & Co. in 2004 and the division began to crumble in 2007. Eurohypo, a division of Commerzbank, was the largest unsecured creditor to the firm, with $2.59 billion.  Eurohypos is thus an administrative agent for the other 175 creditors.  The restructuring may  force the company to sell assets that competitors like Simon’s could buy.


Blackstone Group Purchases Stake in Glimcher Properties REIT

Saturday, November 7th, 2009

Blackstone Logo

Blackstone ventured into Columbus, Ohio this week to purchase a 60% stake in two Glimcher Realty Trust properties. Glimcher Realty Trust is a REIT or real estate investment trust that posted a $1.3 million net loss for 2Q09. The enterprise value of the Blackstone deal was about $320 million and assumed $218 million in mortgage debt. The two properties, WestShore Plaza and Lloyd Center are well known mall sites. Westshore itself is about 1.1 million square feet with tenants include Saks Fifth Avenue, Sears, and Macy’s. Lloyd Center is a regional mall of about 1.42 million square feet. Its anchor stores include Barnes & Noble, Marshall’s, and Sears.

The transaction will give Glimcher necessary liquidity and will position Blackstone as the economy recovers and mall vacancies subside.

Please visit for full news article…