This is a company blog used by the New Jersey Jones Lang LaSalle Team to keep track of current events within the real estate sector. All items posted on this website are originally written by other authors from various sources. This is simply used as a searchable tracking system for news we found relevant to our business.
Plan to Redevelop 52-Acre Industrial Site Advances By Eric Peterson Last updated: February 23, 2006 03:50pm
ABERDEEN, NJ-The township council this week officially conferred “area in need of redevelopment” status on a 52-acre former industrial site in the Cliffwood Beach section of this Monmouth County township, and has named Somerset Development Co. as the site’s designated redeveloper. The designations came after Somerset officials rolled out general conceptual plans for turning the blighted former Anchor Glass Container into a mixed-use town center.
The process began in mid-2004 when the Lakewood, NJ-based Somerset Development bought the abandoned tract from Anchor Glass, reportedly paying about $30 million for the site and its abandoned 790,000-sf industrial complex. The Tampa-based Anchor Glass had used the site for manufacturing for a number of years before converting it to warehouse and distribution use and then shutting it down entirely in the wake of financial problems and a bankruptcy declaration in recent years.
Somerset’s plans are very general at this point, with the firm’s president, Raphael Zucker outlining a concept of “hundreds of apartments and townhouses,” an office component, at least one hotel, and up to three big-box stores anchoring the site’s retail component. According to Zucker, his firm “will incorporate input from major stakeholders and members of the community” before finalizing site plans.
After Somerset’s presentation, Mayor David Sobel told council members, “the development has to give people from the entire region a reason to go there. If Somerset can accomplish that, the project can be successful.”
The council also set a nine-day period running through next week to negotiate timelines for the project. The next step in the process would be to finalize site plans and bring a final proposal before the township’s planning board, according to Sobel.
Site remediation will also be a factor in the development process, with the extent of its contamination currently under study. Anchor Glass, in fact, was fined in 2001 for environmentally related violations, and the plant was temporarily closed.
But if all goes well, “we will give the community a heart and soul.” Zucker told township council members this week. “It will be a place where people can walk for milk without having to get in their cars. It will be a counter to suburban sprawl.”
posted by Jones Lang LaSalle NJ News Blog at 3:50 PM
Forward Air Leases 98,000 SF By Eric Peterson Last updated: February 24, 2006 10:17am
(To read more on the industrial market, click here.) NEWARK-Forward Air Inc. has signed a lease for 97,526 sf of industrial space at 888 Doremus Ave. here. In an expansion move, the third-party logistics company will relocate its local terminal from 802-814 Bergen St. It is one of 90 terminals and regional hubs operated nationally by the Greenville, TN-based company.
Forward Air was represented by William Waxman, senior vice president; Gary Capetta, first vice president; Nick Nitti, vice president; and senior associate Carrie Brown of CB Richard Ellis, Saddle Brook, NJ. “The location and specialized features of the space, including dock doors for specialized air freight containers, were in place for the company’s requirements,” Nitti says. The building’s owner, ING Clarion, was represented by Trammell Crow Co. The terms of the lease were not disclosed.
The building at 888 Doremus Ave., totaling some 500,000 sf, is situated adjacent to Newark Liberty International Airport and the Port of Newark/Elizabeth. Much of the rest of the building is occupied by Guaranteed Overnight Delivery, which uses the location as its headquarters.
posted by Jones Lang LaSalle NJ News Blog at 3:49 PM
Three Cendant Units Will Get New Names By Eric Peterson Last updated: February 24, 2006 10:33am
PARSIPPANY, NJ-The Cendant Real Estate Services Division, which is in the process of being spun off as a stand-alone, publicly traded company, is also getting a new name. Once the spin-off from Cendant Corp. is completed, which is expected to happen in the second quarter of this year, the company will be known as Realogy Corp.
“The name communicates our approach to the real estate business,” says Richard A. Smith, chairman/CEO of the division, who explains that the name is a fusion of “real estate” and “-logy,” a suffix meaning “the science or study of.” Once the change is complete, Smith will be vice chairman and president of Realogy Corp.
Two subsidiaries of the Real Estate Services Division separately being spun off will also be changing their corporate identities. Cendant Mobility, a relocation services company, will become known as Cartus. And Cendant Settlement Services Group, a title and settlement services company, will be known as the Title Resource Group. The Cendant name itself will ultimately be retired. For previous GlobeSt.com coverage, click here.
Other groups within the Real Estate Services Division will retain their names, however. Among them are NRT Inc., the Real Estate Franchise Group and its brands (Century 21, Coldwell Banker, Coldwell Banker Commercial and ERA), and Sotheby’s International Realty.
posted by Jones Lang LaSalle NJ News Blog at 3:48 PM
Eli Lilly; Sun Microsystems; Raytheon; Lear; eBay; EDS; MTV Networks; First American; Boyd Gaming; Wachovia; Bear Stearns; Cartesis.
Lisa Yoon, CFO.com
February 24, 2006 • Charles E. Golden, executive vice president and chief financial officer of Indianapolis-based pharmaceutical giant Eli Lilly and Co., will retire from that position and from the board of directors, effective April 30. Golden joined Lilly in 1996 after 26 years at General Motors, where his roles included corporate treasurer in New York and president of the Vauxhall Motors division in England.
Vice president and controller Derica Rice will be promoted to senior vice president and CFO, effective May 1. Rice joined the company in 1990.
• Michael Lehman came out of retirement to return to his former post as chief financial officer of Sun Microsystems Inc. He succeeds Steve McGowan, who announced his retirement last October from the Santa Clara, California-based company. McGowan served as CFO and executive vice president of corporate resources since 2002.
Lehman held those same titles from 1998 to 2002; since then, he has served on Sun's board of directors in various capacities. He's also served as a business consultant while sitting on the boards of Echelon Corp., MGIC Investment Corp., and NetIQ Corp.; he'll surrender those board seats, with the exception of MGIC. Sun also announced that Robert Finocchio Jr. was elected a director and a member of the audit committee.
• Raytheon Co. tapped the chief financial officer of Lear Corp., David C. Wajsgras, to join the Waltham, Massachusetts-based defense company as senior vice president and chief financial officer, effective March 13. Wajsgras joined Southfield, Michigan-based Lear in 1999 as vice president and controller and became CFO in 2002. Until Lear names his successor, vice chairman James H. Vandenberghe will serve as interim CFO.
• Electronic Data Systems Corp. executive vice president and chief financial officer Robert Swan will join online auctioneer eBay as senior vice president of finance and CFO, effective March 16. Swan joined Plano, Texas-based EDS, a provider of IT outsourcing services, in 2004; previously he served as the finance chief of TRW and as a divisional CFO for General Electric Co. At San Jose, California-based eBay, Swan will succeed Rajiv Dutta, who will move into the new role of president of Skype, eBay's online voice communications business.
Meanwhile, EDS named treasurer Ron Vargo and vice president of finance administration Tom Haubenstricker interim co-chief financial officers, effective March 15. They will also retain their current roles while the company searches for Swan's successor.
• Colette Chestnut was named executive vice president and chief financial officer of MTV Networks, replacing John Cucci, who was promoted to the role of chief operating officer for the company's Comedy Central/Spike TV/TV Land Entertainment Group. Chestnut joined MTVN from advertising agency JWT, where she served as North American finance chief since 2000.
posted by Jones Lang LaSalle NJ News Blog at 3:36 PM
CRANFORD, N.J.--(BUSINESS WIRE)--Feb. 23, 2006--Mack-Cali Realty Corporation (NYSE: CLI) today commented on its stock investment in CarrAmerica Realty Corporation (NYSE:CRE). As indicated in its 10-K filing, Mack-Cali currently holds 1,804,800 shares of common stock in CarrAmerica that it recently acquired.
Mitchell Hersh, president and chief executive officer of Mack-Cali said, "We made an investment in CarrAmerica at a time when we thought that company's stock was significantly undervalued. We believed that it was a strong company with a strong portfolio and underappreciated by the investment community. Our investment has paid off subsequently.
"We were also aware of reports that CarrAmerica might begin to look at its strategic alternatives - just as a number of other public REITs have been looking and some of them have been acquired and/or taken private. Given that some of our geographic interests overlap - particularly in the Washington, DC market - we would be interested in talking to the company about some of its assets should they become available.
"Our investment in CarrAmerica should not be construed as any first step toward a plan to become a national player. There is no such plan at this time."
Mack-Cali Realty Corporation is a fully-integrated, self-administered, self-managed real estate investment trust (REIT) providing management, leasing, development, construction and other tenant-related services for its class A real estate portfolio. Mack-Cali currently owns or has interests in 270 properties, primarily office and office/flex buildings located in the Northeast, totaling approximately 30 million square feet. The properties enable the Company to provide a full complement of real estate opportunities to its diverse base of approximately 2,200 tenants. Additional information on Mack-Cali Realty Corporation is available on the Company's Web site at www.mack-cali.com.
posted by Jones Lang LaSalle NJ News Blog at 3:36 PM
BlackBerry case goes back to court Judge to consider injunction against RIM's email service
WASHINGTON (MarketWatch) -- Research In Motion Ltd is headed for another court showdown Friday, when a federal judge considers whether to suspend U.S. service of the popular BlackBerry wireless-email device.
U.S. District Judge James Spencer is expected to review a request by NTP Inc., a small patent-holding firm in Virginia, for an injunction against U.S. sales and service of the BlackBerry. He's not expected to make a decision until at least early next week, though.
Despite booming sales, RIM has been hurt by concern over its legal liability and the possibility that BlackBerry customers might switch to rival services if the judge orders a shutdown. More than 4.3 million customers worldwide use the wireless device.
Shares of Research In Motion Ltd (RIMM : research in motion ltd com are down 16% from their one-year high. The stock fell more than 4% Thursday.
In 2002, a jury found that RIM's BlackBerry technology violated patents held by NTP. Research In Motion repeatedly has appealed the original decision to no avail.
Last spring, the companies agreed to a tentative $450 million settlement, but the deal later broke down. Analysts estimate RIM might have to pay up to $1 billion to settle the case if it exhausts its legal options.
In recent weeks, however, RIM has received a boost from a decision by the U.S. Patent and Trademark Office to issue a final rejection of at least on NTP patent in an accelerated review of the firm's claims. The process normally takes several years.
The patent office has been under pressure to speed up its review by U.S. government officials, many of whom rely on BlackBerries. Indeed, the government has even argued that a service suspension could hamper the ability of federal employees to do their work.
Yet Spencer has said that he would not take the patent office's current review into account when making his decision. Earlier this week, he rejected a plea by the federal government for a separate hearing on what effects an injunction could have on government users. See related story.
The hearing will begin at 9 a.m. Eastern in Richmond, Va.
Bad blood
In the past month, RIM has gone on a sustained public-relations offensive to drum up support for its case. RIM also said that it has developed a software "workaround" so customers can continue to use their BlackBerries even if an injunction is issued.
The workaround, which customers would have to download, supposedly does not violate NTP patents. It's unclear whether the judge would accept the company's claim.
NTP, for its part, accused RIM on Thursday of trying to manipulate the political system in an effort to overturn the company's earlier victory in court.
"RIM now seeks a second bite at the apple by using its lobbyists and poltical connections to exert political influence to have the PTO reexamine NTP's patents,' the firm said.
NTP also charged that RIM is spreading disinformation about the status of their legal dispute. The firm said RIM's claim that its patents have been invalidated by the patent office are "flatly wrong."
In addition, NTP pointed out that it can appeal the rulings to an appeals board in the patent office as well as a federal court of appeals.
Judge Spencer, who presided over the original trial, could issue a ruling within a few days. In 2002, he was angered by what he called "questionable legal tactics" used by RIM during the trial, and he more than doubled the damages.
Jeffry Bartash is a reporter for MarketWatch in Washington.
posted by Jones Lang LaSalle NJ News Blog at 3:35 PM
Industry Insider: Firm's chairman passes the baton Friday, February 24, 2006
The head of one of the state's largest law firms is heading to New York City after nearly 20 years at the helm of Gibbons, Del Deo, Dolan, Griffinger & Vecchione.
David Sheehan, chairman of the Newark firm of more than 200 lawyers, will become a partner in the New York office of Troutman Sanders, an Atlanta- based firm. The 62-year-old lawyer is expected to join the new firm sometime next week to handle intellectual property litigation. "It was always my idea that we would have young leadership in this firm and it would never suffer from having senior leaders who hang on too long. I think I accomplished everything I could," Sheehan said yesterday.
The succession traces its roots to April 2004, when Sheehan stepped aside as managing director of the firm after 17 years. All told, Sheehan has worked at Gibbons for 33 years. Two years ago, he was given the title of chairman and spent most of his time on business development and building client relationships.
Firm officials said the goal was to shift the management of the firm -- as several others have done -- to a more corporate model from one where lawyers met in committees to make decisions on everything from conference room decor to compensation.
Patrick Dunican replaced Sheehan as the managing director and was made responsible for the day-to- day administration of the firm, overseeing issues like compensation and growth. He has been with the firm since 1992.
Sheehan said he always planned to stay at the firm for a time to help it hit certain benchmarks, such as expanding the attorney ranks and opening an office in Philadelphia. Since those have been accomplished, he felt it was time to leave.
The opportunity to handle more litigation and less administrative work was what drew him to the new job.
"I wanted to do something that was new and different and challenging," Sheehan said. "I don't think I could ever retire."
Dunican said the departure of his personal and professional mentor was making for some emotional days at the Newark office.
"He is an important figure in the firm's history, and there is no question he was the principal architect of our business plan," said Dunican.
Today, he added, "the firm is stronger than ever."
In the past two years, roughly 40 attorneys have joined the firm. Annual revenue for 2005 was up almost 25 percent, and current projections put the firm's 2006 revenue over $100 million, he said.
There are no immediate plans to name another chairman at the firm, Dunican said.
And finally ...
Hildebrandt International of Somerset released a study that showed law firm merger activity stayed strong last year, with 49 completed mergers. That's up two from the year before. ... A novel practice group that will focus on stem cell technology has been launched at Kirkpatrick & Lockhart Nicholson Graham, an international firm with offices in Newark. ... A free seminar on paying for nursing home or assisted-living care will be held at the New Jersey Law Center at 1 p.m. Monday. The seminar is open to the public. For more information, call (800) FREE-LAW (800-373-3529).
-- Kate Coscarelli
posted by Jones Lang LaSalle NJ News Blog at 3:34 PM
BASF, the world's top chemical company by sales, won approval yesterday from Europe's highest competition authority to acquire New Jersey-based Engelhard.
"The (European) Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it," the commission said in a statement.
BASF made the bid for Engelhard -- the biggest takeover attempt in its more than 140-year history -- to enter new, growing markets and to reduce the cyclical nature of its businesses. Engelhard, based in Iselin, had originally rejected BASF's unsolicited $4.9 billion offer as inadequate, and earlier this week said it was talking to other suitors.
Competition clearance permits one company to buy another, but does not compel either to complete a deal. -- Reuters
posted by Jones Lang LaSalle NJ News Blog at 3:29 PM
Mack-Cali CEO talks soothingly of Xanadu REIT says profit rose, but a key number fell Friday, February 24, 2006 BY JUDY DeHAVEN Star-Ledger Staff
Mack-Cali Realty's chief executive sought yesterday to allay concerns about the firm's 20 percent stake in the troubled Xanadu project, a $1.3 billion retail and entertainment center now under construction at the Meadowlands Sports Complex. The lead Xanadu developer, the Mills Corp., has been mired in an accounting scandal and a series of poor earnings reports. Just yesterday, the Virginia-based company confirmed it has hired two investment banks to advise it on a potential sale of key assets or the entire business. Mills also said it was cutting its work force and its 2005 earnings will be "significantly below" market expectations. Mack-Cali Chief Executive Mitch Hersh said during a conference call with analysts and investors that the Cranford-based real estate investment trust and state officials would need to sign off before Mills' interest in Xanadu could be sold. Mack-Cali gained its 20 percent interest and the right to develop a hotel and office buildings at the complex in exchange for $32 million. "Right now, construction is well under way," Hersh said during the call, which was held to discuss the company's fourth-quarter earnings. During a recent meeting with officials from Mills and the sports authority, Hersh said, "the Mills team indicated that ... there are no concerns, immediate concerns anyway, relative to funding the construction activity. "Other than that, I don't know anything other than I have a seat at the table if ... ownership is intending to change or (there is) any other material type of change." Mack-Cali, a major owner and operator of office buildings in New Jersey, reported fourth-quarter revenue of $163.3 million, a 9.5 percent increase over last year. But both net income and funds from operations, a key figure for real estate investment trusts, fell. Net income of $14.4 million, or 23 cents per share, was less than half the $30.3 million, or 49 cents per share, Mack-Cali reported a year earlier. Funds from operations, which adds depreciation and amortization back to earnings, declined 4 percent, to $65.1 million. Shares of Mack-Cali slid 2.4 percent. Hersh said the recovery of the commercial real estate market remains slow, and the industry is still not experiencing the kind of wide- scale corporate expansion that would create a large demand for more office space. While he expects the first quarter to be challenging, he said he is "very hopeful it will moderate throughout the balance of the year." He also said the recent announcement that Mack-Cali would buy the Gale Co.'s office portfolio for $545 million "will provide us with a very powerful engine for growth." Analysts peppered Hersh with questions about the company's purchase of a 3 percent stake in CarrAmerica Realty, a REIT with holdings in 12 major markets throughout the country, including Washington, D.C., and California. Mack-Cali disclosed it spent $62.7 million to buy more than 1.8 million shares of CarrAmerica in the annual report it filed with the Securities and Exchange Commission. Hersh said Mack-Cali spent roughly $35 a share, on average, for CarrAmerica stock, which closed yesterday at $40.57. Hersh said he and Mack-Cali's board decided to make the purchase because, at a minimum, it represented a "very good value," but stopped buying the stock as the price began to rise. He said while the company is always on the lookout for a bi-coastal presence, he has had no discussions with CarrAmerica about an acquisition, nor has Mack-Cali hired financial advisers to evaluate such a transaction. When asked if Mack-Cali bought the CarrAmerica stock in hopes of gaining control of the company, Hersh said: "We live in a world where anything can happen, and the rules of the road are pretty strict. "I don't know where it ends up," he said, "but either way, it ended up a sound investment."
posted by Jones Lang LaSalle NJ News Blog at 3:25 PM
TCC Firing Up $50M Stock Repurchase By Connie Gore Last updated: February 23, 2006 10:11am
(To read more on the debt and equity markets, click here.) DALLAS-After buying $58 million of its stock in the past 18 months, Trammell Crow Co. is planning to repurchase another $50 million. The buying window could open as early as tomorrow.
Derek McClain, TCC's CFO, tells GlobeSt.com that the sale sets up "an accretive impact" to boost earnings per share for stockholders who hold fast to their investments. If the sale begins tomorrow, the window will close in early March, he says, adding TCC execs will decide later if they want to exercise an extension option.
TCC has 36.88 million outstanding shares of common stock. It opened at $32.80 per share this morning on the NYSE. At today's price, TCC could repurchase more than 1.5 million shares. The decision came one day after TCC's quarterly earnings call when executives responded to a question that an additional repurchase wasn't in the cards. McClain didn't say what caused the change in attitude, but did say the acquisition could include large blocks from privately held pools. "We think the EPS will go up as a result," he says. "We think it's a good investment." TCC plans to finance the repurchase with cash generated from operations and its line of credit.
posted by Jones Lang LaSalle NJ News Blog at 3:24 PM
In a deal that neatly encapsulates the last several years of real estate history and points to some of the trends shaping today's leasing market in the New York area, Citco Funding Service has agreed to a 15-year, 70,000-square-foot lease at Harborside Plaza 10 on the Jersey City waterfront. Valued at $23 million over its 15-year lifespan, the lease allows Citco, which bills itself as the world's leading hedge-fund administrator, to expand from its Midtown Manhattan headquarters (where it says it will also remain over the nine years left on its lease) into far less expensive space across the river. Managing director Jay Peller, who says there are approximately 300 employees at the Madison Ave. office, envisions adding another 200 staffers when Citco moves in this June.
To complete the transaction, Citco had to maneuver through a paper trail covering the building's current owner, iStar Financial, a Manhattan-based commercial mortgage REIT; its primary lessee, Charles Schwab; and the company that bought a 280,000-square-foot chunk of Schwab's 575,000-foot net lease, American Financial Realty Trust (nyse: AFR), a Pennsylvania-based REIT.
The first dozen years of Citco's lease are with sub-landlord AFR, which worked closely with iStar to make the deal. For the final three years, Citco will be leasing directly from iStar following the expiration of the Schwab lease, which American Financial, an aggregator of banking-related properties, acquired in 2004.
When AFR did that deal, the 280,000 square feet in the Schwab lease was completely vacant. New Jersey REIT Mack-Cali broke ground on the building at its Harborside office complex in March of 2001 expressly for Charles Schwab at the peak of the brokerage's pell-mell expansion days in the late 1990s. Mack-Cali (nyse: CLI), which spent $123 million on construction, sold the property to iStar in 2003 for $194 million; AFR is responsible for finding tenants for its Schwab sublease, and with the Citco deal has filled approximately half of that space.
Citco, which was represented by CB Richard Ellis broker Ken Rapp, scoured the Lower Manhattan market and Jersey City in its search for what is essentially technology and operations space. Along with the fact that 40% of Citco's workers are New Jersey-based, what clinched the deal was a healthy combination of incentives from city and state, on top of an aggressive rent from American Financial. Although parties to the deal declined to give specific rental numbers, market sources place Citco's starting rent in the low $20 per square foot range.
Add in incentives, including a sales tax exemption from Jersey City that offers "significant benefits, especially in the initial year with bailout and equipment costs," says Jay Biggins, of Statdmauer Bailkin Biggins Strategies, a Princeton consulting firm. Biggins, who worked with Citco on obtaining a benefits package, also points to New Jersey's generous business employment incentives program as "really New Jersey's most potent competitive tool." This program essentially returns a share of the personal income tax generated by employees to the company they work for; Biggins calls it a form of revenue sharing. The grants last up to 10 years, and recipient companies are required to make a 15-year commitment to the state.
But it wasn't just the incentives that brought Citco to the table, notes Peller. He says that American Financial, which spent $2 million on adding power redundancy to the building after acquiring the Schwab lease, was "very pro-active." Among other functions, the building will serve as a disaster recovery site for Citco's Manhattan and Toronto offices. "There are a lot of nice buildings downtown," says Peller. "We took a long look."
Just as the Schwab deal with Mack-Cali epitomized the upward trend of independent brokerages and the growth of individual investing at the end of the last decade, the Citco deal tracks the enormous growth of the hedge fund industry over the past few years. When Citco first took space at 350 Madison Avenue in 2000, says Peller, the firm had 20 employees. Today, as he prepares for the expansion move, he contemplates the complex agreement he's reached, involving two REITs, a brokerage house (Schwab still had to approve the deal), and city and state agencies. "It's a great property, and AFR is doing a lot of hard work in this iStar's building," he says. "I guess we're the ones who are paying. Someone has to, regretfully so."
At last month's World Economic Forum in Davos, Switzerland, one of the big talking points was the transformation of private equity funds from niche investments into an important part of the mainstream economy, helping companies more effectively allocate resources. David Rubenstein, co-founder of the Carlyle Group, went as far as to call it a "golden age" for these funds.
Indeed, private equity firms, coming off a year of record fundraising, have a mountain of cash and are reaching into nearly every segment of the corporate universe in efforts to invest it-pulling their investment bankers in their wake. Just as the late 1990s were halcyon days for technology bankers, the last two years have been superb for those covering private equity funds (often referred to as either "financial sponsor" or "financial entrepreneur" groups, they bring deal ideas to their private equity clients). Nearly ideal conditions in the debt markets have helped global buyout volume, including exits, more than double to $538 billion last year from $189 billion in 2003, according to Mergermarket.
"We're overwhelmed with business," says Harry van Dyke, a managing director at Morgan Stanley and head of business development in its financial sponsors group (FSG). "Things couldn't look better. The opportunity is enormous."
According to Morgan Stanley (see charts), financial sponsors were behind at least one-third of all IPOs over the past three years, and roughly half of those done in 2005. They were involved in more than one-quarter of all US M&A deals in the last two years, accounted for one-third of high-yield bond issuance and one-half of all leveraged loan volume. "Sponsors contribute anywhere from 15% to 30% of all investment banking fees, depending on how we do the accounting," says the head of financial sponsors coverage for a top-tier universal bank.
Banks are building up and refocusing their resources to service these increasingly important clients better-and in the process running up against some tricky questions. How many private equity firms should the bank cover? Should there be one or multiple points of contact? Should the FSG handle deal execution as well or stick strictly to coverage? And, when forced to make a choice, should the bank go after sponsors' business at the expense of traditional corporate clients?
There is no doubt that private equity firms make terrific clients. They do loads of M&A deals, and each acquisition generally requires a bridge loan, followed by refinancing in the leveraged debt markets. Often, once they own a company, they execute further recapitalizations and/or refinancings. They sometimes buy more companies in the same industry and then roll them together. And for every acquisition there is eventually an exit, either a sale or an IPO. Each of these activities rings the register for investment bankers. This mound of fees generally eclipses anything they would receive from a corporate client doing a simple acquisition, for instance.
However, there is some downside, modest though it may be. "Financial sponsors may be the best clients, but they are also the worst clients because they are the most knowledgeable," says Brad Hintz, a brokerage analyst at Sanford Bernstein. "They are so active doing deals that they are the leading players pushing down pricing in investment banking." The frequency with which private equity firms use investment-banking services gives them the leverage to put pressure on fees for M&A advice, equity and debt underwriting. And since they are generally former Wall Street financiers, they know exactly how things work.
Moreover, with their promise of outsized compensation, they compete with the investment banks for staff, with senior bankers setting off to start their own private equity funds and established funds luring away junior bankers.
Wall Street is certainly not complaining, though. It is going after private equity funds' business in a big way, sending in its most senior, well-connected dealmakers with plenty of ground troops to back them up. Observers say Lehman Brothers, in particular, has built its increasingly successful corporate finance business on the back of its FSG. Morgan Stanley has around 50 investment bankers worldwide in its coverage group. Goldman Sachs won't disclose how many bankers are in its FSG, but rivals say it also has about 50 worldwide. Citigroup has around 80, including bankers who help clients with fundraising. Credit Suisse, which unusually does deal execution within its FSG, counts more than 100 bankers worldwide.
"Although we have had a financial sponsors group for at least 10 years, over the last two and a half years, the resources focused on it have grown exponentially, consistent with the commercial opportunity," says Alison Mass, co-head of the FSG at Goldman.
Mass, who started working with private equity firms during the 1980s at Drexel Burnham Lambert, joined Goldman in 2001 from Merrill Lynch and became FSG co-head in 2003 along with Milton Berlinski, a senior dealmaker who was brought in from Goldman's financial institutions group. The two oversaw an almost fivefold expansion. Goldman now covers more than 100 funds, ranging from about $500 million to $10 billion in size.
Morgan Stanley's FSG has "close to doubled in the past two years," according to Van Dyke, who adds the investment bank is still recruiting in that area. The problem is finding good people. "The main limitation is how many are available," he says. "We've had great success with internal transfers from other parts of the bank."
Varying approaches
Some of the banks have different takes on the breadth of what their FSGs should be doing, especially when it comes to deal execution and capital introduction. As at Goldman, the FSG at Morgan Stanley concentrates chiefly on coverage, bringing in industry and product specialists to help with deal execution when necessary. "It's done on a case-by-case basis," says Van Dyke. "Execution is staffed out of wherever is expedient. Financing is often staffed from here."
Credit Suisse has perhaps the largest financial sponsor group because it does so much. "A lot of firms fully distribute out execution to industry or product groups, but not us-we eat what we kill," says Harold Bogle, head of the group at Credit Suisse. "The purpose is to bring the team at all levels closer to clients. And it benefits the junior bankers to get hands-on experience."
Kamal Tabet, global head of the financial entrepreneurs group, which is what Citigroup calls its FSG, says the bank has had a private equity coverage team since the late 1990s, which unusually integrates fundraising for its clients with the coverage function. The group has maintained its global headcount of about 80 people, and Tabet says it is currently considering expanding its coverage beyond the largest funds to include the next tier at the top of the middle market. Credit Suisse's Bogle says his firm is also eyeing an expansion of its middle-market coverage.
The vast majority of private equity deals are done in the small and middle market, although big deals get most of the attention. At Jefferies, a middle-market specialist, deal size for private equity clients ranges from $200 million to about $1 billion, says Adam Sokoloff, co-head of its FSG. "We always had financial sponsor clients, but we formalized the group about four years ago," he says, adding people from both outside and within the bank.
Now numbering about 15, the FSG manages the bank's relationships with private equity firms, but it doesn't do so exclusively. "There has to be a touch-point, but we do recognize that other people in the firm have personal or business relationships with private equity firms, and we encourage those relationships," says Sokoloff. "What's important is that we are all communicating."
The private equity view
Private equity firms see this increasing emphasis on "delivering the whole bank" through their FSGs as a step in the right direction. Mark Barnhill, a senior VP at Platinum Equity, another private equity fund, is among those who finds the silo structure that still reigns at many banks can be a hindrance, unless there is broader collaboration. "For us, siloing can be counterproductive, because our approach is not market or industry-specific, but based on a business profile," he says. "We look for noncore or orphaned businesses in sectors that we believe are ripe for consolidation."
That profile can encompass anything from high-tech to chemical manufacturers to logistics companies, says Barnhill, making Platinum difficult for bankers to pigeonhole. "We view the financial sponsor group as our advocate within the bank," he says. "The relationship management approach is quite helpful."
On the other hand, says Barnhill, his business development team actively cultivates relationships with a variety of product and industry bankers at each institution, both junior and senior.
Mark Holdsworth, a partner at Tennenbaum Capital, says most banks are not set up to deal holistically with his firm because of its unusual "hybrid" strategy-it does hedge fund and private equity investing from a single fund with a flexible mandate (see news story in this issue). "This is changing, however," he says. "The world is moving our way." But at the moment, Tennenbaum's 55 employees deal with bankers at all levels and in a variety of product groups.
Glenn Hutchins, a founding partner at Silver Lake Partners, says that it took the banks a while to master the art of covering private equity firms, with their multi-industry portfolios and use of many products. But now that they have, firms like his are confounding them again. "We have changed the model again by specializing in one industry, technology," he says, explaining that Silver Lake chiefly wants to talk to tech bankers, backed up by the financial sponsor bankers. He says Silver Lake will do 10 times more tech deals than any other investment banking client, and it should be treated accordingly, with bankers bringing all possible large-scale tech deals to its attention.
Three weapons
In the battle for private equity business, the investment banks have several weapons at hand in addition to their expertise in structuring and execution. One is their balance sheets, which allow them to extend bridge loans and underwrite high-yield bonds, leveraged loans and equity issues. That's chiefly what some larger firms, such as Silver Lake, need from them, since they often have plenty of M&A expertise in-house.
Another weapon is fundraising. Some banks, such as Citigroup, Credit Suisse, and Jefferies do this for their private equity clients for a fee, often through a separate group or subsidiary. Citi has a team of 19 bankers devoted to originating and executing fundraising mandates, working in partnership with its financial sponsors coverage bankers, explains Tabet. Citi charges a fee for the service, generally a percentage of new money raised. It considers it a strategic activity, since it not only helps the bank service existing clients, but helps it identify emerging managers.
A third weapon can be the banks' own private equity arms, though this can be a double-edged sword, and banks are now very careful how they wield it. In this new age of multibillion-dollar club deals done by groups of private equity funds, banks can sometimes clinch business by having their own private equity funds write a check, investing alongside their clients. Goldman's Berlinski says he considers "making equity available from the firm or from the fund for co-investment alongside our clients" an important service for the bank to offer. Indeed, the Goldman fund's willingness to join the private equity consortium in last year's $11.3 billion SunGard buyout after two of the seven funds dropped out-forking over $500 million in equity on two days' notice- got the bank onto the list of financial advisers and earned some valuable goodwill.
Most banks now stress this idea of "co-investment" and "taking minority positions" in client deals as a way of deflecting criticism that they are competing with their private equity clients. Several investment banks pulled back from this business in 2004 and early 2005 in response to this concern. "There was some controversy when private equity firms were concerned about their investment banks competing with them on deals," says Credit Suisse's Bogle. "We are trying to collaborate with our private equity clients, and we have told our largest clients we will not compete with them on large buyouts."
Touchy situations can still arise, however, occasionally needing to choose sides during an auction process, for example. It is clear that banks are in the private equity business for the long haul, however. One reason, obviously, is that the returns are too good to pass up. Another is that deals done by merchant banking or private equity arms generate business for the bankers. "There's a wonderful synergy between merchant banking and investment banking, as long as you do a good job managing the conflicts of interest," says Bernstein's Hintz.
Democratization of ideas
In essence, these three weapons really come down to one thing: money. But as important as that is to the private equity funds, it pales in comparison to what they most want from investment banks: ideas. "For us, proprietary deal ideas and opportunities trump everything else," says Platinum's Barnhill.
However, in an increasingly competitive market dominated by auctions, few big ideas remain exclusive for very long. "For private equity firms, the proprietary idea is the elusive Holy Grail-it almost doesn't exist any more," says Silver Lake's Hutchins.
Explains Citi's Tabet: "Everything of more than $500 million in enterprise value is pretty much guaranteed to be an auction, with a lot of people looking at it." The increasing challenge, he says, is finding a different angle to help a particular client. He says that often involves connecting them with the right management team.
The other problem an auction presents to banks is that they have to choose which client to support. "You have to make some early decisions about who you want to back and in what capacity," says Tabet. Banks may have to choose not only among different private equity firms, but also sometimes between a financial buyer and a corporate client. Considering the more lucrative nature of sponsor business, it might seem an obvious choice, but that's not necessarily the case, bankers say.
For one thing, it's always better for a bank to win the sell-side mandate, which ensures that it will get paid. That most often means a corporate client. And even when a corporate strategic buyer is competing in an auction against financial buyers, the choice isn't always straightforward. "When we are not the sell-side firm, we have a decision to make," says one head of financial sponsors at a bulge-bracket bank. "The most important priority is whether there is a logical buyer, and relationship issues are very important. If a longstanding client says, We want to own this,' there is no point for us in jeopardizing that relationship to make an additional $10 million."
This banker's firm has a dedicated group of senior people that focuses full time on business selection and managing conflicts. "It's not easy, and of course, we don't always make the right decision," the banker says.
Private equity funds aren't really bothered by this. "What banks really need to do is the best job of matching the right seller with the right buyer, based on what is best for the business and the transaction, not for their fees or their long-term relationships," says Barnhill. "In the end, if they don't do that, the bottom falls out anyway."
Silver Lake's Hutchins says that private equity firms accept that the banks want to advise whichever bidder they think will win-simply put, they still want to get paid.
Bankers say that it doesn't, in fact, necessarily come down to a conflict between corporate and sponsor clients, because they really need to have both-corporate clients looking to sell assets value their knowledge of and contacts in the private equity world, and financial buyers want their corporate relationships and expertise to help them find deals.
One thing the bankers don't seem much worried about is that after all the frantic buildup, they will find themselves overstaffed in their FSGs if the private equity phenomenon proves to be a bubble. Morgan Stanley's Van Dyke, for one, doesn't expect that to happen. "I don't think this is going to come to a sudden end," he says. "If it did, a lot of things would have to happen at the same time: Both the debt financing market and the IPO markets would have to shut down, or get much more expensive." Even in that case, he says, private equity firms would still need to invest all the money they have just raised, which is subject to time limits.
Goldman's Mass agrees. "I don't think the private equity market will contract anytime soon," she says. "But even if it does, our bankers are flexible enough to do other things. After all, we recycled a lot of technology bankers, so we will recycle private equity bankers if we have to."
(c) 2006 Investment Dealers' Digest Magazine and SourceMedia, Inc. All Rights Reserved.
posted by Jones Lang LaSalle NJ News Blog at 1:49 PM
LaSalle Buying House of Blues Hotel for $114M By Mark Ruda Last updated: February 22, 2006 05:12pm
CHICAGO-LaSalle Hotel Properties has agreed to pay $114.5 million for the 367-room House of Blues Hotel, 115,000 sf of Marina City retail space and 896 parking spaces. The Marina City retail space is leased to a tenant roster that includes Smith & Wollensky Steakhouse, Crunch Gym, Bin 36 restaurant, 10-Pin Bowling Lounge and Bank One.
The deal with Marina City Hotel Enterprises is expected to close by April. Bethesda, MD-based LaSalle Hotel Properties already is buying the Westin Michigan Avenue for $215 million from JER Partners. That deal is scheduled to close by March 9. When the House of Blues is added to the portfolio, LaSalle Hotel Properties will have three Downtown properties totaling 2,285 rooms, the majority of those rooms at the Marriott at 540 N. Michigan Ave.
House of Blues Hotel already has a competitor across Dearborn Street in the Westin Hotel. However, Kinzie Development South, LLC, is expected to get a recommendation Thursday morning from the city council committee on zoning for plans that include a 525-room hotel at 400 N. Dearborn St.
posted by Jones Lang LaSalle NJ News Blog at 9:57 AM
UPDATE: 800-Room Tower Is Key to Borgata's $325M Phase II By Eric Peterson Last updated: February 23, 2006 08:11am
ATLANTIC CITY-Boyd and MGM Mirage have unveiled detailed plans for what's to come in the second phase of the Borgata expansion. The $325-million Phase II will add 800 rooms in a 40-story tower connected to the original property. The addition will boost the Borgata to some 2,800 rooms--a Las Vegas-size number--and the project is supported by the data that even with an Atlantic City-tops 2,000 rooms, the Borgata consistently turns out a 97% occupancy rate.
The new tower also has a name: Boyd officials have dubbed it the “Water Club.” Besides the added room count, the second phase will include a two-story, 36,000-sf spa, plus additional retail and meeting space. The room count will include what Borgata officials term “three residences modeled after chic New York-style lofts.”
Last year, Boyd Gaming and MGM Mirage announced that they would expand their jointly owned Borgata Hotel, Casino & Spa to the tune of $525 million. The property had been open for just 16 months at that point, completed at the cost of $1.1 billion. The expansion was to be in two phases, and the $200-million first phase is nearing completion and slated for delivery this spring. The first phase of the expansion consists mostly of new casino space, several eateries and a nightclub.
“We conceived the Water Club as an exclusive extension to the international style that defines Borgata,” says former Borgata president and COO Robert Boughner. Boughner oversaw the design of the Water Club before, as reported by GlobeSt.com, moving west in January to run Echelon Resorts, a new Boyd Gaming project in Las Vegas.
Actual work will start shortly with a late 2007 delivery slated. The design and construction team for the phase includes Yates-Tishman Construction Corp, architects Bauer Lewis Thrower & Associates, principal interior designers Laurence Lee Associates and interior and exterior landscapers Lifescapes International. Boyd Gaming and MGM Mirage, both of Las Vegas, are 50-50 owners of the Borgata, and the property is managed by Boyd.
posted by Jones Lang LaSalle NJ News Blog at 9:48 AM
CRANFORD, NEW JERSEY – February 23, 2006 – Mack-Cali Realty Corporation (NYSE: CLI) today reported its results for the fourth quarter 2005. Highlights of the quarter included: - Reported net income per diluted share of $0.23; - Reported funds from operations per diluted share of $0.86; and - Declared $0.63 per share quarterly common stock dividend.
FINANCIAL HIGHLIGHTS
Net income available to common shareholders for the fourth quarter 2005 equaled $14.4 million, or $0.23 per share, versus $30.3 million, or $0.49 per share, for the same quarter last year. For the year ended December 31, 2005, net income available to common shareholders equaled $93.5 million, or $1.51 per share, versus $100.5 million, or $1.65 per share, for 2004. Funds from operations (FFO) available to common shareholders for the quarter ended December 31, 2005 amounted to $65.1 million, or $0.86 per share, versus $67.9 million, or $0.90 per share, for the quarter ended December 31, 2004. For the year ended December 31, 2005, FFO available to common shareholders amounted to $270.3 million, or $3.57 per share, versus $270.1 million, or $3.60 per share, for the same period last year.
Total revenues for the fourth quarter 2005 increased 9.5 percent to $163.3 million as compared to $149.1 million for the same quarter last year. For the year ended December 31, 2005, total revenues amounted to $643.4 million, an increase of 11.4 percent over total revenues of $577.7 million for the same period last year.
All per share amounts presented above are on a diluted basis.
The Company had 62,019,646 shares of common stock, 10,000 shares of 8 percent Series C cumulative redeemable perpetual preferred stock ($25,000 liquidation value per share), and 13,650,439 common operating partnership units outstanding as of December 31, 2005. The Company had a total of 75,670,085 common shares/common units outstanding at December 31, 2005.
As of December 31, 2005, the Company had total indebtedness of approximately $2.1 billion, with a weighted average annual interest rate of 6.15 percent. The Company had a total market capitalization of $5.4 billion and a debt-to-undepreciated assets ratio of 42.8 percent at December 31, 2005. The Company had an interest coverage ratio of 3.1 times for the quarter ended December 31, 2005.
Mitchell E. Hersh, president and chief executive officer, commented, "During the quarter, we remained focused on enhancing our Northeast presence, securing long-term leases with high-quality tenants, and strengthening our balance sheet." He continued, "For 2006, we're excited about the new growth opportunities we are pursuing with our agreements in principle to acquire The Gale Real Estate Services Company and interests in almost 2.8 million square feet of properties in New Jersey."
The following is a summary of the Company's recent activity:
ACQUISITIONS
In November, the Company entered into a contract to acquire all the interests in Capital Office Park, a seven-building class A office complex totaling approximately 842,300 square feet in Greenbelt, Maryland, for aggregate purchase consideration of approximately $161.7 million. The purchase consideration for the acquisition, which is expected to close no later than the end of the first quarter of 2006, will consist of a combination of $97.9 million of common operating partnership units in Mack-Cali Realty, L.P. and the assumption of approximately $63.8 million of mortgage debt. At closing, the sellers may elect to receive approximately $27.9 million in cash in lieu of common operating partnership units.
Under the agreement, the Company also has the option to acquire for $13 million approximately 43 acres of adjacent land sites. These sites can accommodate the development of up to 600,000 square feet of office space. Located on the Capital Beltway (I-95/I-495), northeast of Washington, D.C., Capital Office Park is 84.6 percent leased to 90 tenants. The buildings being acquired are 6301, 6303, 6305, 6404 and 6406 Ivy Lane, each eight stories; a seven-story building at 6411 Ivy Lane; and a four-story building at 9200 Edmonston Road.
DEVELOPMENT
In October, the Company entered into a development and acquisition agreement with AAA Mid-Atlantic. The agreement includes the Company's development of an operations center for AAA and its acquisition of land and buildings from AAA, all in Hamilton Township, New Jersey. The Company will develop for AAA a three-story, 120,000 square-foot class A office building on a 21.6 acre land site at the Company's Horizon Center Business Park. AAA has pre-leased the building, which it will use as an operations center for 15 years. Construction on the build-to-suit project is expected to be completed in the third quarter of 2006. Upon completion of the new building for AAA, the Company will acquire from AAA three office and office/flex buildings totaling 83,762 square feet and land for the development of an additional 243,000 square feet of commercial space. The Company plans to redevelop each of the acquired properties.
FINANCING ACTIVITY
In November, the Company's operating partnership, Mack-Cali Realty, L.P., sold $100 million of 10-year senior unsecured notes. The 5.80 percent notes are due January 15, 2016. The proceeds from the issuance of approximately $99 million were applied to the repayment of outstanding borrowings under the Company's unsecured credit facility.
Recently, in January, the Company's operating partnership, Mack-Cali Realty, L.P., sold $200 million of senior unsecured notes, comprised of $100 million of six-year notes and $100 million of 10-year notes.
The six-year notes bear interest at 5.25 percent, are due January 15, 2012, and were priced to yield 5.48 percent. The 10-year notes are a re-opening of previously-issued $100 million, 5.80 percent notes due January 15, 2016, which were re-opened at 101.081 to yield 5.65 percent, plus accrued interest. Following the re-opening, the outstanding size of the 5.80 percent notes will be $200 million. The proceeds from the issuance of both series of notes of approximately $200.8 million were applied to the repayment of outstanding borrowings under the Company's $600 million unsecured revolving credit facility.
DIVIDENDS
In December, the Company's Board of Directors declared a cash dividend of $0.63 per common share (indicating an annual rate of $2.52 per common share) for the fourth quarter 2005, which was paid on January 13, 2006 to shareholders of record as of January 5, 2006. The Board also declared a cash dividend on its 8 percent Series C cumulative redeemable perpetual preferred stock ($25 liquidation value per depositary share, each representing 1/100th of a share of preferred stock) equal to $0.50 per depositary share for the period October 15, 2005 through January 14, 2006. The dividend was paid on January 17, 2006 to shareholders of record as of January 5, 2006.
LEASING INFORMATION
Mack-Cali's consolidated in-service portfolio was 91.0 percent leased at December 31, 2005, as compared to 90.0 percent at September 30, 2005 and 91.2 percent at December 31, 2004. For the quarter ended December 31, 2005, the Company executed 167 leases totaling 1,107,381 square feet, consisting of 791,850 square feet of office space and 315,531 square feet of office/flex space. Of these totals, 367,254 square feet were for new leases and 740,127 square feet were for lease renewals and other tenant retention transactions.
For the year ended December 31, 2005, the Company executed 721 leases totaling 5,664,624 square feet, consisting of 4,539,501 square feet of office space and 1,125,123 square feet of office/flex space. Of these totals, 2,447,793 square feet were for new leases and 3,216,831 square feet were for lease renewals and other tenant retention transactions.
Highlights of the quarter's leasing transactions include:
- Sumitomo Mitsui Banking Corporation, a subsidiary of Sumitomo Mitsui Financial Group, signed leases totaling 71,153 square feet at Harborside Financial Center in Jersey City, New Jersey. The transactions represent a new, 10-year lease of 40,470 square feet at Harborside Plaza 1 and a 10-year renewal of 30,683 square feet at Harborside Plaza 2. Harborside Financial Center is a five-building, 3.1 million square-foot office complex and is 91.0 percent leased. - Fred Alger & Company, Inc., an investment firm, signed a new 15-year lease for 37,785 square feet at Harborside Financial Center Plaza 1.
- National Union Fire Insurance Company, a subsidiary of the American International Group, expanded its presence at 101 Hudson Street in Jersey City, New Jersey by 38,507 square feet for seven years. 101 Hudson Street is a 1.25 million square-foot office building and is 99.5 percent leased.
- Paradigm Health Systems, Inc., a complex care management company, signed a five-year renewal of 19,500 square feet at 10 Mountainview Road, a 192,000 square-foot office building located in Upper Saddle River, New Jersey. The building is 100 percent leased.
- Groundwater/Environmental Services, Inc., an environmental consulting and contracting firm, signed a 30,070 square-foot transaction at 1340 Campus Parkway, located at Monmouth Shores Corporate Park in Wall Township, New Jersey. The transaction is a renewal of 24,200 square feet and expansion of 5,870 square feet, with a term of seven years. 1340 Campus Parkway is a 72,502 square-foot office/flex building and is 100 percent leased.
- Coca-Cola Enterprises, Inc., which markets, produces and distributes the products of the Coca-Cola Company, expanded its lease at 555 Taxter Road in Elmsford, New York by 12,520 square feet for nine years. 555 Taxter Road is a 170,554 square-foot office building and is 100 percent leased.
- Optical Distributor Group, LLC, a contact lens distributor, signed a seven-year, nine-month expansion of 18,615 square feet at 4 Skyline Drive in Hawthorne, New York. The 80,600 square-foot office/flex building is 92.2 percent leased.
- Prism Color Corporation, a provider of pre-press and printing services to the graphics industry, renewed its lease of 37,320 square feet at 31 Twosome Drive in Moorestown, New Jersey for five years. 31 Twosome Drive is an 84,200 square foot office/flex building and is 100 percent leased.
- Star Linen, Inc., a linen supplier to the lodging, healthcare and food service industries, signed a new, five-year lease for the entire 32,700 square-foot office/flex building located at 1507 Lancer Drive in Moorestown, New Jersey.
- Unitrin Direct Insurance Company, the direct-to-consumer auto insurance arm of financial services provider Unitrin, expanded its presence at One Plymouth Meeting in Plymouth Meeting, Pennsylvania by 14,015 square feet for five years. One Plymouth Meeting is a 167,748 square-foot office building and is 100 percent leased.
- Leo A. Daly Company, a provider of planning, architectural, engineering and interior design services, signed a transaction totaling 27,374 square feet at 1201 Connecticut Avenue, NW in Washington, DC. In addition to a twelve-year, 12,544 square-foot expansion, the company extended the term of its current lease of 14,830 square feet for just over five years. 1201 Connecticut Avenue, NW is a 169,549 square-foot office building that is 86.2 percent leased.
- Aircell, Inc., a provider of aircraft telecommunications systems, signed an 18,765 square-foot transaction at 1172 Century Drive in Louisville, Colorado. The transaction represents an expansion of 7,938 square feet for seven years and renewal of 10,827 square feet. 1172 Century Drive is a 49,566 square foot office building and is 100 percent leased. Included in the Company's Supplemental Operating and Financial Data for the fourth quarter 2005 are schedules highlighting the leasing statistics for both the Company's consolidated and joint venture properties.
ADDITIONAL INFORMATION The Company expressed comfort with net income and FFO per diluted share for the first quarter and full year 2006, as follows:
These estimates reflect management's view of current market conditions and certain assumptions with regard to rental rates, occupancy levels and other assumptions/projections. Actual results could differ from these estimates.
An earnings conference call with management is scheduled for today, February 23, 2006 at 11:00 a.m. Eastern Time, which will be broadcast live via the Internet at: http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=CLI&script=1010&item_id=1200455 The live conference call is also accessible by calling (719) 457-2641 and requesting the Mack-Cali conference call. The conference call will be rebroadcast on Mack-Cali's website at http://www.mack-cali.com beginning at 2:00 p.m. Eastern Time on February 23, 2006 through March 2, 2006. A replay of the call will also be accessible during the same time period by calling (719) 457-0820 and using the pass code 2414114.
Metro area added few jobs in 2005 Wednesday, February 22, 2006 By RICHARD NEWMAN STAFF WRITER
The number of jobs in the New York metropolitan area grew in 2005, but only a tad, the federal government said Tuesday.
In a report that provides further evidence of a sluggish local economy, U.S. Labor officials counted 8,504,900 jobs in December 2005 in the area that includes New York City, North Jersey, Long Island and New York's Lower Hudson River Valley.
That was a mere 64,300 more jobs than they counted in December 2004.
The region's job growth rate of 0.8 percent in 2005 lagged well behind the national rate of 1.5 percent.
The Bergen-Hudson-Passaic area added just 2,200 jobs, a 0.2 percent increase. "Since August, the area has not seen much job growth," said Bureau of Labor Statistics economist Martin Kohli in an e-mail.
The Newark-Union region, which includes Morris County and stretches into Pennsylvania, shed 7,500 jobs in 2005, a 0.7 percent decline. The area has lost jobs for 21 straight months, the BLS said.
New York's Lower Hudson Valley enjoyed the highest job growth. Rockland, Westchester and Putnam counties together added 11,300 jobs, a 2 percent year-over-year increase.
The New York metro area's manufacturing sector shed 13,300 jobs in 2005. Education and health services posted the largest gains, adding more than 30,000 jobs, a 2.4 percent increase. The sector that includes hotels and restaurants added nearly 16,000 jobs, a 2.6 percent gain. During 2004 and 2005, the metro area regained about half of the jobs lost in the previous three years, while the nation as a whole has more than regained the jobs lost in the recession, the report noted.
Among the 12 largest population centers in the United States, the New York metro area ranked tenth in year-over-year employment growth. The Washington D.C., Miami and Atlanta areas ranked first, second and third, respectively.
At the bottom of the list were the Boston and Detroit areas.
Only 12th-ranked Detroit showed a net loss in jobs year over year. E-mail: newman@northjersey.com
AMB Property Corp. Launches $236M in Worldwide Projects February 22, 2006 By Amanda Marsh, Staff Writer
Further increasing its global presence, AMB Property Corp. said that it has begun 2.4 million square feet worth of development in Osaka, Japan; Mexico City and Guadalajara, Mexico, and the acquisition of four industrial facilities in Germany, representing an aggregate investment of approximately $236 million.
AMB and local partner AMB BlackPint have started development of its second Osaka distribution center, AMB Amagasaki Distribution Center 2 (rendering pictured), which will total 982,000 square feet and is projected for completion with a total investment of $114.2 million. In Mexico City, AMB and local partner G. Accion began development of the first two buildings in its Trés Rios Industrial Park, the city's largest master-planned industrial park. When completed, the buildings will comprise approximately 940,000 square feet with a total investment of about $55 million. In Guadalajara, the company joined forces with G. Accion again to start development of Arrayanes Building 2 in San Jorge Industrial Park, with 474,000 square feet and an investment total of $19.8 million.
"We follow our customers (who are) members of a global supply chain," AMB executive vice president, president Europe & Asia Guy Jaquier told CPN this afternoon. These key hubs are important to the company because "these are where the boxes stop moving; they need real estate."
AMB's international presence was further expanded with the acquisition of four distribution facilities at the Port of Hamburg in Germany, Europe's second busiest port, aggregating approximately 561,000 square feet for a total price of approximately $47 million. This purchase established the company as one of the largest third-party logistics property owners at the port, with 1.4 million square feet of developments in process and operating facilities.
posted by Jones Lang LaSalle NJ News Blog at 9:44 AM
CS Capital's Paul Saylor February 17, 2006 By John Salustri
More of the same. That's the bottom-line prognosis for the investment community as seen through the eyes of CS Capital Management, the investment advisory arm of Los Angeles-based Chadwick, Saylor & Co. The parent firm just recently released its investment trends projections for the year, and while 2006 isn't shaping up to be a watershed period, there are some subtle changes that will help to color the national investment scene in slightly different hues. In a recent, exclusive interview with GlobeSt.com, CS Capital chairman Paul Saylor, filled in those details.
GlobeSt.com: So what's in store for the investment community in the months ahead?
Saylor: We'll be seeing a continuation of '05, meaning that the trend of capital excess remains and it's growing. There'll be more capital chasing fewer quality deals, which drives up prices and drives down yields. Also the stronger markets are getting stronger and the weaker markets will remain weak.
GlobeSt.com: So there'll be more investors looking for alternative plays?
Saylor: There's been more allocation by those institutional investors who have not previously been in real estate as well as increased allocations by those who have. The market is awash in cash from domestic and foreign institutional investors as well as individuals. Most of those investors--especially those with prior real estate experience--are on a yield quest and have expanded their definition of real estate into foreign as well as domestic, debt as well as equity, development as well as existing properties. They're getting out there on the risk spectrum.
GlobeSt.com: What's your take on the de-emphasis of cap rates as a money-making tool?
Saylor: The traditional concept of cap rates is being used less for investment purposes. In part that's because institutional real estate managers have a hard time looking their clients in the eye and saying you should buy this at a four-, three- or 2% cap rate. It just doesn't make much sense. So they're much more focused on discount rates, residual cap rates and overall rates of return. But, unfortunately, this brings us back to some of the same comments investment managers were making 10 years ago: "Don't worry if you get only a four or five cap rate going in. We're going to manage the hell out of this thing, and 10 years from now you'll have a 15% IRR."
That's just not so. Unless there's some really intensive management activity that can be done, such as renovation, redevelopment, retenanting, what you see is what you get. If you get in at a five or six cap today, you're probably going to get out in seven or 10 years with an 8% or 9% return. People are more focused on enhancing their portfolio by taking a little more risk.
GlobeSt.com: And you see no surprises in the interest rate environment?
Saylor: They'll continue to edge up but only moderately, and it won't have any impact on the amount of capital aimed at real estate.
GlobeSt.com: What’s happening in the public markets and what do you make of this apparent trend toward privatization?
Saylor: Sarbanes-Oxley is bugging the hell out of most people who run public REITs because they--or their fathers--were entrepreneurs, syndicators, developers. They went public for a variety of reasons and most of them in candid moments will admit that managing a public company on a quarterly basis to adhere to an analyst's requirement and reporting disclosure requirements is not really consistent with their original intent. It's a concern over who's looking behind the curtain and how far do I want them to look?
There's also a more practical aspect to this. The market's changed now and a lot of REITs have come to realize that the acquisitions they make in this competitive market may well be dilutive to earnings rather than accretive. They're just not able to find properties at attractive pricing. They don't want a lot of land on their books for future development because that's a drag on earnings. Sometimes the development process itself is a drag on earnings. So how do you expand or buy without at least temporarily impacting earnings? Some REIT executives see an opportunity to get back into the private sector. They see the opportunities represented by private capital as being in the best interests of their shareholders.
General Growth has gone public and private three or four times in the past 15 years or so. There's a public-to-private trend now that will continue. And then the private sector will see the public sector as more appealing and there'll be more IPOs and mergers.
GlobeSt.com: Let's talk about markets for a minute. In your projections, you list Chicago as a good prospect but not DC. Explain. Saylor: DC's not on our hit list because it's on everybody else's. DC is like Atlanta. It's on everyone's shopping list and there's always a flood of capital coming in. It's so hot in terms of investor priorities that it's due for a cooling, and again, it's not a question of values plummeting but just becoming less than they once were. The inverse is true of Chicago, which is overbuilt in office and in the CBD. Yet, in terms of the economics, it's an extremely vibrant city. There's only so much land available that can be built on. You have to take a little longer-term view with Chicago. We wouldn't go in with the intent of selling in one or two years. But it's the only non-coastal city we're really enthusiastic about.
GlobeSt.com: What does all of this mean for Chadwick, Saylor?
Saylor: It means more of the same for us, too. Where we see the trends dictates how we operate our business. We're a little different because we have less than 20 people in our company and we're going to keep it that way. We don't have to worry about how much market share we can obtain.
IT TAKES A FREIGHT VILLAGE USA 02 16 06 Roberta Weisbrod
International trade continues to expand after setting a double digit pace over the past decade, and freight transport is projected to double over the next two decades. So it is easy to understand the need for super-efficient distribution centers where containers carrying international and domestic goods are broken down and recombined for the customer.
The industrial real estate sector is riding the crest of global trends and building to keep up. The action is hottest at border crossings and ports in major cities. The Los Angeles metropolitan area is the continental mouth open to the onslaught of low cost goods from Asia, primarily China. According to data from CB Richard Ellis, by the third quarter of 2005, Southern California had a vacancy rate of 2.7% with 36 million square feet of leasing activity, of which 61% was in the Inland Empire. Chicago industrial operators and developers leased t 31.5 million square feet in 2005, with 18.3 million square feet of new construction starts in a market with an 8.6% vacancy rate.
Dan O'Connor, director of research at Global Real Analytics in California, notes that there is "healthy demand" in the industrial sector nationwide. "There is improving occupancy, development is at moderate levels from a historical standpoint, and Global trade createing need for modern space around the world," says O'Connor.
There are, however, challenges from every direction to the standard business model of building distribution centers on cheap land, which is typically at a distance from more pricey real estate near cities, ports and border crossings. The first is from the customers the truckers (and the shippers who send them) transporting goods between port/border, distribution center, and consumer. The longer distances they have to travel limits the number of local runs a day. Other forces, including a driver shortage, reductions in the allowable hours of service and congestion severely exacerbate this problem.
A second challenge is, simply put, neighbors and neighborhoods. Small towns resent the congestion and get limited benefits from the through traffic. Urbanites who consume trucked goods nonetheless dislike the truck-clogged streets, for which they are paying more in both cost and quality of life.
But a third challenge also creates the most opportunities to resolve some of the issues outlined above: distribution tenants are not getting the services they need. Under the current model, the individual distribution center tenant must procure a-la-carte services that they need in order to do business. Security? A chain link fence and a guard. Place for a meeting? Go offsite. Food for workers and management? Go offsite. Banking; hiring; training; conferencing? Offsite. Transport for workers? Private automobile. A dignified workplace with landscaping, and maintenance, and advanced communication options? Dream on!
One alternative that goes a long way toward solving or reducing these issues has been launched in Europe, and is beginning to receive serious attention in the U.S.: freight villages: large-scale developments that house several distribution centers and other freight businesses, with 24 hour perimeter CCTV security, intermodal operations, business services, amenities and urban-friendly features.
There are more than sixty freight villages in Europe. They are designed for the tenants, enabling them to do business efficiently by concentrating their anticipated workforce and management needs on site. They are all within a few miles/minutes of the cities they serve, making it easier to do business and to attract a concentration of workers. The ZAL (Zona Actividades Logisticas) Freight Village in Barcelona is owned by CILSA, a Spanish public private corporation that is 75% owned by the Port of Barcelona and 25% by the private corporation SEPES, offers free transit from the city for the workers. By being closer to a city, the numbers of truck miles are reduced; there are accessible jobs for residents; and the freight villages with their commitment to quality can become amenities for the urban area landscaped, well maintained, and a potential canvas for architecture. Additional value-added features include extra warehouse space for short-term needs; conference centers; hiring halls; training centers; restaurants; banks; jogging trails; and even nature paths.
Overall, the freight village can offer a setting of such high quality that the distribution center can function as a showroom. Business operations become more efficient and can expand with the synergies of agglomeration. Additional opportunities may arise through contacts within the international freight village network.
It all sounds great, but what about America? We have no freight villages yet, although Watsonland in California comes closest. The opportunity exists here to build on the European model, primarily through the ability to acquire large parcels of land and apply proven corporate standards of ownership and management. The New Jersey Transportation Planning Authority is exploring reusing brownfields for distribution centers and other types of freight-related real estate. Brownfields may be purchased cheaply but the cleanup imposes an investment that surface parking, for example, cannot return. The New York Metropolitan Transportation Council has recently undertaken a similar study. But with high-value, high-quality freight villages, the investment can be recouped. Freight villages set the stage for a high return on investment by attracting higher-quality tenants willing to pay premium rents for more efficient, amenitized workplaces.
In a study of European freight villages, conducted by the Partnership for Sustainable Ports for Union County, N.J., we looked at patterns of ownership and operation. Critical to the success of developing freight villages is the structuring of private-public partnerships with local and regional governments involving land donations, tax and other incentives, perhaps in exchange not only for job creation but also environmental stewardship.Roberta Weisbrod of the Partnership for Sustainable Ports is a consultant working in the arena of freight transportation land use.
posted by Jones Lang LaSalle NJ News Blog at 5:01 PM
Citco Fund Services Subleases 70,000 SF By Eric Peterson Last updated: February 22, 2006 08:23am
JERSEY CITY-Citco Fund Services has agreed to sublease a 70,000-sf block of space at Harborside Plaza 10 here for the next 15 years. The hedge fund administration firm will occupy the contiguous space on the class A building's sixth and seventh floors, housing 350 staffers on-site beginning in June.
Sublandlord American Financial Realty Trust took over the space, part of an eight-floor, 250,000-sf block, from Charles Schwab in 2004. Schwab itself had net-leased the space from original developer Mack-Cali Realty Corp. in 2002, but never occupied it.
"Plaza 10 provides the finishes and technology we need to comfortably grow our business," says Jay Peller, managing director of Citco Fund Services, whose company administers more than 1,700 funds totaling some $300 billion in assets. "It has convenient access to Manhattan, where we will retain our existing office space as we continue to expand our Hedge Fund Services Division."
AFR's brokerage team for the transaction was led by Frank Doyle of Jones Lang LaSalle, and included that firm's Cynthia Wasserberger, John Meisel, Tom Reilly, Sam Buckley and Jay Lapham. JLL took over the assignment to find tenants for AFR's Plaza 10 space in early 2005. Citco, meanwhile, was represented by Kenneth D. Rapp, Ramsey M. Feher, Scott A. Wilpon, Jon Herman and Richard Nocom of CB Richard Ellis.
"We are witnessing a high volume and diverse mix of financial services approaching us, looking for high-end space with new technology," says Michael Weil, vice president of sales and leasing for the Jenkintown, PA-based AFR. "The benefits of tax incentives, more affordable rents compared to New York City and access to Manhattan are making this a location of choice." Of AFR's original sublease from Schwab, about 145,000 sf remains available and "is under negotiation with multiple parties," according to Weil. The Citco signing "demonstrates our ability to lease large blocks of space. It eliminates a significant vacancy from our portfolio."
The 19-story, 595,000-sf Harborside Plaza 10 was built by the Cranford-based Mack-Cali as part of its larger Harborside Financial Center on this city's waterfront. Mack-Cali sold it in late 2003 to the New York City-based iStar Financial Inc for $194 million ($336 per sf) and continues to manage the asset. other tenants under long-term leases include Instinet Corporate Holdings, Bank of Montreal, Mizuho Corporate Bank and Panepinto Properties.
posted by Jones Lang LaSalle NJ News Blog at 5:00 PM
