Friday, July 1, 2011

MIM-Hayden fund buys office buildings in Wayne

by Natalie Kostelni

"A local real estate fund teamed up with a Boston real estate investment firm to buy two buildings in the Valley Forge Office Center on East Swedesford Road in Wayne.

MIM-Hayden Real Estate Fund aligned with Davis Cos. to acquire the first mortgage on 530 and 580 E. Swedesford Road. The loan totaled roughly $44 million and was bought at a discount from CW Capital for somewhere in the low to mid-$30 million range, according to various real estate sources.

The two, four-story buildings total 258,000 square feet and are fully leased to Independence Blue Cross and GE Capital for the next four years.

“The bet we’re making is you have a four-year runway to get the building up and running,” said Anthony J. Hayden, principal of Hayden Real Estate Investments of Conshohocken.

The new owners intend to spend more than $13 million making exterior and interior renovations of which the most notable will getting rid of the drab red exterior and re-skinning the buildings with a facade that is more consistent with some nearby redeveloped office properties. The owners will also add a fitness center and cafeteria. D2 Solutions was retained to complete the design work.

The buildings had been owned by Keystone Property Group of Bala Cynwyd but the loan, which came due last August, was taken over by a special servicer and subsequently put out to bid. Keystone even attempted to buy the loan.

“The note was marketed for sale and Keystone aggressively bid to purchase the note,” said William H. Glazer, president of Keystone. “Based on Keystone’s experience as a buyer and seller of real estate in this market, where we own and operate more than 3 million square feet, we determined in the final bidding for the note, the capital required to purchase the note on risk adjusted basis was better deployed in other investments.”

Such loan sales are common these days as lenders try to get rid of bad commercial mortgages on their books and sell loans at a discount and owners try to buy their own loans to regain control of the property but at a lower price than the loan. These sales have helped to push down commercial real estate prices here and across the country. Moody’s/Real National All Property Price Index that was released last week indicated that commercial real estate prices slipped by 3.7 percent in April.

Even though transaction volume has increased, many are distressed transactions and that has hindered a broad market recovery at this time, according to Moody’s. Distressed sales have comprised at least 20 percent of the repeat-sales transaction volume for 17 consecutive months, according to Moody’s data. On the bright side, trophy properties in top-tier markets started a year ago to experience a price recovery and that continues.

Keystone bought the six-building Valley Forge Office Center, which totals 480,000 square feet, in 2005 for $64 million from the Ashforth Co. of Connecticut and GE Capital. Keystone launched a major, multimillion-dollar renovation of the six buildings soon after it acquired them. Four of them were transformed into Class A space and 530 and 580 E. Swedesford — the buildings the fund and Davis bought — were left as is.

While Davis focuses on repositioning distressed assets, the Valley Forge acquisition is the type of deal the MIM-Hayden fund is seeking out for its $108 million fund it closed on in March. The fund is co-managed by Miller Investment Management and Hayden Real Estate Investments and is targeting underperforming office, industrial and flex properties within a 200-mile radius of Philadelphia. It is looking to make a significant bet on the Washington market and is also interested in Center City. Hayden Chairman J. Anthony Hayden (Anthony J. Hayden’s father) stepped down from his seat on the Liberty Property Trust board so he could pursue properties he may have competed with Liberty to buy.

While Hayden has a long history in real estate, Miller Investment, which manages and invests money on behalf of high-net-worth families and institutions, was seeking to add real estate to its offerings.

“Real estate is an area that is very important for our clients,” said Radcliffe Hastings of Miller. “We think the timing is good.”

Davis focuses on the redevelopment of distressed assets and was looking to enter the Philadelphia market. It anticipates joint venturing with the MIM-Hayden fund on other acquisitions.

It has used 20 percent of the fund on five properties totaling 325,000 square feet as well as a 46-acre in-fill tract in Montgomery County. It expects to close four deals this month and to fully invest the fund over the next two years."

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