Sunday, February 14, 2010

Real Estate Investor Bressler & Reiner Inc. experiencing financial trouble

"Bressler & Reiner Inc., a real estate investor that bought a dozen office properties in the Philadelphia suburbs at the peak of the market, is experiencing financial trouble with nine of them.

The real estate company’s problems are becoming increasingly common with commercial real estate nationwide as property owners are struggling to hang on to buildings. In the case of Bressler & Reiner, the Rockville, Md., company is facing foreclosure on four of the office buildings and is delinquent on loans associated with five properties, according to Trepp Inc., a New York research firm that tracks commercial real estate loans. Many of the loans on which the company has defaulted are in special servicing, in which the lender and borrower figure out if the property should be foreclosed upon or salvaged through renegotiating loan terms.

The buildings that don’t have any issues include 600, 601 and 602 Fort Washington Executive Center in Fort Washington. NutriSystem Inc. recently signed a 12-year deal to move into 120,000 square feet at 600 Office Center Drive. The deal has put the building on more solid footing and fills a gaping hole in the 135,000-square-foot building left by Hartford Insurance Co., which moved out of the space when it relocated to Horsham about a year ago. In addition, 1150 Northbrook Drive in Trevose has no reported issues.

The 12 properties, some of which have multiple office buildings, total roughly 2 million square feet and are clustered in Bucks and Montgomery counties with one in Chester County.

The company’s rise and current position is becoming an oft-repeated modern classic real estate tale.

Formed in 1971, Bressler & Reiner bought properties throughout the Philadelphia area between 2003 and ’06, according to Securities and Exchange Commission documents. In retrospect, those purchases ended up being made during the peak of the market that ran from about 2002 to the first quarter of 2007. That’s when commercial real estate was trading at some unprecedented high prices.

The company bought commercial, residential and hospitality properties as well as undeveloped land. At one point, it owned the locally renowned Divine Lorraine Hotel at Broad and Fairmount streets and 640 N. Broad St. but sold them. It also once had an interest in two of developer Carl Dranoff’s residential projects — Venice Lofts in Manayunk and Symphony House on South Broad, according to company documents.

Bressler & Reiner bought the buildings using money it raised as a public company, proceeds gained through selling real estate and by borrowing money from financial institutions and arranging mortgages on the properties. It generated revenue and by leasing office space, renting out apartments and the use of its hospitality properties. Darryl Edelstein, CEO, couldn’t be reached for comment.

The buildings the company bought in the Philadelphia suburbs include: Mearns Park in Warminster; One and 900 Northbrook Drive in Trevose, 200-220 W. Germantown Pike in Plymouth Meeting, and 102 Pickering Way in Exton. The properties were typical Class B buildings that thrive during tight office markets when rents are high and tenants, priced out of Class A space, turn to less expensive offices.

With the onset of the recession, some of Bressler & Reiner’s buildings experienced a loss of tenants or saw some cut employees accompanied by falling rents, higher vacancies and a credit crunch that has made refinancing difficult. Also at play is a flight-to-quality dynamic that enables some tenants to leave Class B space and lease better office buildings that now have lower rents.

For example, its Fort Washington Executive Center was 45 percent occupied at the end of September, according to its quarterly report. While Mearns Park was 96.1 percent occupied, its 900 Northbrook property stood at 52.4 percent occupied. Both 900 Northbrook and Mearns are going through foreclosure proceedings."

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