Robert Brunswick | Aug 03, 2017
Real estate investing today vs. in past cycles is buoyed by a predictable debt and equity market and transparency.
Commercial real estate has been used effectively in ultra-high-net-worth (HNW) and family office portfolios as a means to enhance yield in a return‑starved market. This enhanced yield has not been lost on the greater institutional marketplace, however, where sovereign wealth funds, domestic pension funds and life insurance companies have flooded the market with capital, prompting concern over the potential for a pricing bubble.
So why does real estate remain appealing to high-net-worth investor portfolios?
It is important to remember that real estate still functions predominately within a private marketplace, and with certain inefficiencies that, when properly priced and sourced, can provide returns in excess of comparable benchmark indexes. Real estate still offers predictable cash flows, tax benefits and a hedge against inflation, and thus remains highly appealing; most HNW’s and family offices are targeting as much as 10 to 15 percent of their investment portfolio to real estate.
Real estate investing today vs. in past cycles is buoyed by a predictable debt and equity market, a greater educated real estate workforce and transparency of reporting with access to immediate valuation. Taken together, this permits sophisticated investors to continue allocating capital to real estate with predictability of performance.
The sphere of real estate investment opportunities for HNW investors is widening
Today’s real estate investment landscape has broadened for HNW investors with the ability to customize their investments regionally, by product type, by sponsor and within both debt and equity investments. Further, HNW investors can tranche their real estate investments across varied risk-return scenarios for appropriate diversification. Often, these investors deploy capital without competing directly with institutional investors.
Interestingly, these non-gateway cities display many positive demographic trends, including continued job growth that enhances property rent rolls and income performance. In the West, these demographic trends have provided certain supply and demand imbalances that produce attractive market rental increase opportunities and enhanced exit liquidity.
There are always challenges. What are the solutions?
Most HNW’s and family offices succeed in sourcing a consistent pipeline of opportunities through regional and relational sponsors, who in turn are sourced directly or through third-party investment management firms, and thus create a diversified basket of real estate investments.
Many in this investment group have also become more active in their sourcing by investing in debt transactions, taking advantage of the tightened banking regulatory environment to access a real estate product more akin to a fixed income investment.
Both of these approaches require sophisticated investors to be more active in sourcing and underwriting their real estate investments to ultimately recognize this increased yield opportunity. For sponsors, the ability to deliver sound investment opportunities is met with consistent demand for a higher real estate allocation among HNW investors and family offices.
Robert Brunswick is the co-founder and CEO of Buchanan Street Partners, a real estate investment management firm. He also currently serves as a board member of the Hoag Hospital Foundation, founding member of the UC Irvine Center for Real Estate and his professional affiliations include membership in the Urban Land Institute (ULI), Pension Real Estate Association (PREA) and Young Presidents Organization (YPO).
REAL ESTATE BRIEFLY
Newport Beach-based Buchanan Street Partners has acquired Bayland Building, an office project near Levi’s Stadium in Santa Clara. Buchanan Street bought the building from Sleepy Hollow Investment Co. for $32.3 million and will execute capital improvements. The 116,000-square-foot building is 100 percent leased to four tenants led by Inphi Corp. Bayland is at 2953 Bunker Hill Lane is within walking distance to the Santa Clara Convention Center, Levi’s Stadium and a light-rail station. Eastdil Secured’s San Jose team represented the seller in this transaction. Buchanan Street represented itself.
Encore for Education, a commercial real estate industry charity concert, raised $161,345 to benefit Music Matters, a program created by Buchanan Children’s Charities and the Orange County Community Foundation to restart Orange County public schools music programs. This was the fifth Encore for Education since Buchanan Children’s Charities was founded in 2007 and was attended by more than 1,300 people. Funds raised will go toward purchasing instruments impacting more than 1,000 students annually at the Ocean View, Cypress and Centralia School Districts. The grant also allows the districts to hire music teachers and purchase supplies to launch elementary music education programs.
JERRY SULLIVAN | Monday, May 8, 2017
CASA joined Buchanan Children’s Charities and the OC Community Foundation as beneficiaries of Encore for Education, which raised $160,000 with Cheap Trick as the headliner on April 20 at the House of Blues. “Generous sponsors from the real estate industry” helped, with Newport Beach-based Buchanan Street Partners a key sponsor.
Janice Bitters | Commercial Real Estate
Buchanan Street Partners has purchased the Bayland Building near Levi’s Stadium in Santa Clara for $32.3 million, and its first order of business will be to upgrade the property with new amenities on-site and improved common areas, the company said Friday.
The seller, Sleepy Hollow Investment Co., had owned the 116,000-square-foot building at 2953 Bunker Hill Lane for more than two decades before the transaction was finalized last week.
At one time, the company touted itself as a long-term investor that is “able to effectively manage market fluctuations as a result of this approach,” according to its website, but the company has been selling off properties in recent months. Earlier this year, Sleepy Hollow also sold off 14 other buildings in the Bay Area to five different buyers for $130 million. The company was represented by Eastdil Secured’s San Jose office in the recent deal.
Representatives from Sleepy Hollow did not returns requests for comment Friday, but Robert Dougherty, partner at Buchanan Street, said in an interview Friday that as he understands it, the Bayland Building was among the last properties in Sleepy Hollow's portfolio.
“What attracted us to the opportunity was that it was the last property in their portfolio, so we felt like we had a motivated seller on the other end of transaction,” he said.
The sale of the four-story building, which sits on a 3.61-acre lot on the north side of Bunker Hill Lane between Great American Parkway and Betsy Ross Drive, works out to about $278 per square foot or $8.94 million per acre.
The property also includes a two-story parking structure on-site, as well as surface parking that wraps around the building. The property comes with 461 parking spaces, or about four spots per 1,000 square feet of office.
Dougherty said the building, originally erected in 1987, is set to get new HVAC and other technical, back-of-house upgrades.
It’ll also get more contemporary cosmetic finishes throughout the building and new indoor and outdoor lounge areas. Buchanan Street will also be putting in a canopy over the entrance of the building, new landscaping and electrical vehicle charging stations.
The building is about a half mile away from Levi’s Stadium, near a growing number of office and retail options.
“That location is compelling,” Dougherty said. “We think that with the improved product we will be able to put forward – thanks to our renovations – it should be a very attractive property.”
The building has four tenants, though 60 percent of the space is taken up by semiconductor company Inphi Corp. Other tenants on the property are also tech companies, Dougherty said.
Though the active leases at the site aren’t very long-term, Dougherty said the planned improvements will make the building more attractive to both existing tenants and others when it is time to renew the agreements.
He also noted that the property is currently leasing at rates below market value for the area. Buchanan Street Partners plans to bump up those rents to be more in-line with the current asking rents in Santa Clara.
As of the end of last year, the average asking rent rate for Class A office space in Santa Clara was $4.52 per square foot, according to data released by CBRE, which will be managing the property.
One advantage that the Bayland Building may have over other office properties in the area is that it is multi-tenant, offering one of the few options for smaller tenants to scoop up space in Santa Clara, Dougherty said.
“If you are a 7,000- to 20,000-square-foot tenant, we present a pretty compelling option when a lot of the larger buildings are occupied by the tech behemoths,” he said.
The acquisition is Buchanan Street Partner’s first Silicon Valley purchase in about a decade. The company sold off its last property in the Valley in 2008, though it continued to own buildings in the mid-Peninsula area and in Marin County.
Looking forward, the recent Silicon Valley acquisition is not likely a sign that Buchanan Street will begin digging for more property in the area, Dougherty said.
“We are concerned about valuations in Silicon Valley right now,” he said. “But we are always on the lookout for that miss-priced asset.”
Buchanan Street Partners closed an $8.6 mil loan for construction of The Roosevelt, a 32-unit residential townhome development in Tempe, AZ. The project, located at 225 South Roosevelt St in Tempe, will be developed by a joint venture between a regional multifamily developer and a private real estate investment firm based in Scottsdale, AZ.
The Tempe submarket continues to benefit from growth in the insurance, finance and technology sectors, which has helped anchor demand for residential projects like The Roosevelt,” said Matthew Doerr, vice president at Buchanan Street Partners. “We were attracted to this new construction financing opportunity because the project differentiates itself from other residential developments with an energy efficient design and modern façade that caters to the region’s tech-forward culture.”
Cindy Hammond of Churchill Commercial Capital aaranged the 74% loan-to-cost, non-recourse solution over a 24 month term. Buchanan Street previously provided the borrower a quick-close land loan to acquire the 1.7 acre infill site in mid-2016.
The Tempe North office market continues to outperform all other submarkets in the Phoenix metro with 1.7 msf of positive net absorption in 2016. Major employers in the immediate area include State Farm Insurance, Microsoft, Morgan Stanley, Silicon Valley Bank and Arizona State University. The Roosevelt’s proximity to Mill Avenue will benefit the project because Mill Avenue is the premier live-work-play destination in the Phoenix metro.
BY CARRIE ROSSENFELD
ANAHEIM, CA—Encore for Education, the signature fundraising event for Buchanan Children’s Charities, has raised more than $2.2 million to give back to the kids of Orange County, Buchanan Street’s Robert Brunswick tells GlobeSt.com.
Encore for Education, the signature fundraising event for Buchanan Children’s Charities, will take place on April 20 at the House of Blues Anaheim. This year’s event will feature a live concert by the rock band Cheap Trick.
Buchanan Children’s Charities is a 501(c) (3) organization founded in 2007 by Buchanan Street Partners, a real estate investment management company in Orange County, that has measurably improved the lives and education opportunities for children in the local community. Encore for Education is a private, intimate concert with 1,200 to 1,600 attendees to support the Charity’s Music Matters initiative, which is aimed at restarting the music programs in Orange County public schools.
Robert Brunswick, co-founder and CEO of Buchanan Street Partners, tells GlobeSt.com, “We have built a culture as a firm that provides good corporate stewardship and gives back to the community, and that is just one reason we founded Buchanan Children’s Charities. Since inception, we’ve raised more than $2.2 million to give back to the kids of Orange County. Encore for Education has turned into the foundation’s signature event that is built around our commercial real estate industry—and we make a night of it!”
Last year, Encore for Education generated more than $200,000 for Orange County public schools that revitalized arts education across 16 school districts impacting 160,720 students from kindergarten through 12th grade. It also provided 3,786 teachers access to professional development tools to improve their arts and dance programs.
For this year’s event, a VIP reception will begin at 7 p.m., doors open to the audience at 7:30 p.m., and there will be formal remarks at 8:30 p.m., followed by a 90-minute set beginning at 9 p.m. A DJ will close the night beginning at 10:30 p.m.
Encore for Education 2017 will be the fifth concert hosted since the founding 10 years ago. Money is raised through corporate sponsorships and ticket sales to a targeted local audience. Past bands to perform include Goo Goo Dolls, Third Eye Blind, Crosby Stills and Nash, Gin Blossoms and Blues Traveler.
This year’s event is generously underwritten by sponsorships from more than 50 industry leaders including Ten-X, Seyfarth Shaw, Allen Matkins, Arnel, CBRE, Cushman & Wakefield, First Bridge Lending, Lowe Enterprises, Metro Commercial Properties, SquarMilner, Bixby Land Co., Devcon Construction, Essex Realty Management, Irvine Co., LBA Realty, the New Home Company, Shopoff Realty, Wells Fargo and many more.
For more information on Encore for Education, click here. To buy tickets, click here. To view video footage from last year’s event, click here. To find out more about where the proceeds go, click here.
Buchanan Street Partners, a real estate investment firm based in Newport Beach, Calif., that invests debt and equity capital on behalf of institutional and private investors, announced March 28 its launch of a new multifamily investment platform. As part of the initiative, the company plans to deploy $500 million over the next five years to acquire and manage value-add and core-plus assets.
Kevin Hampton, former president of PLC Apartments, also in Newport Beach, has been hired as an executive vice president to lead the company’s new initiative.
“There are a variety of factors we believe will result in increasing opportunities in apartment markets. As construction lenders rein in new lending and equity investors become more cautious, we expect the supply pipeline to shrink,” said Tim Ballard, president and co-founder of Buchanan Street Partners, in a statement. “When combined with the changing demands of renters by choice, we believe there's an increasing opportunity to improve existing apartment assets and generate attractive returns in doing so.”
Historically, Buchanan Street has invested in more than 14,000 multifamily units, often serving as the equity partner. Going forward, the company will focus on acquiring properties directly. Hampton and his team will pursue opportunities in the Western United States, with an immediate focus on Denver, Salt Lake City, and Phoenix.
While at PLC, Hampton oversaw the company’s investment strategy and execution. Previously, he led development and investment operations across the West at Associated Estates, a publicly traded REIT, and prior to that served as vice president of development at Western National Realty Advisors. During his career, Hampton has been responsible for the development of more than 15,000 apartment units across the West.
“As we grow our investment business, we will also seek additional multifamily experts to bolster the team,” said Hampton in the press release. “We believe our human capital is our greatest investment and are currently in search of a multifamily acquisition analyst and a vice president of asset management to join us.”
By Carrie Rossenfeld
NEWPORT BEACH, CA—In many coastal California markets, there is a tremendously deep investor base focused on California, often resulting in pricing that has outpaced fundamentals, Buchanan Street Partners’ president Tim Ballard tells GlobeSt.com. As we recently reported, the firm has purchased a 224,000-square-foot transit-adjacent office tower in Denver’s largest office submarket and is eyeing other markets outside of California. We spoke with Ballard about what is drawing the firm to these other markets and what their buying strategy is for these other regions.
GlobeSt.com: What is attractive about investing in markets outside of California?
Ballard: We are focused on markets that offer a combination of strong local economies and pricing levels that offer attractive risk-adjusted returns. The challenge in many coastal California markets is the tremendously deep investor base focused on California, often resulting in pricing that has outpaced fundamentals.
There are two important trends that I believe are causing this. Foreign capital continues to increase its investment in US markets. However, as we have seen in past cycles, this capital rarely moves beyond the coasts. Combine that with the continued growth of mega real estate funds that have $2 billion to $15 billion of equity that are primarily focused on the largest markets where they can deploy capital into large assets, and you can see the result of all of this capital pushing into the California coastal markets. We are concerned that this is not sustainable over the long term.
GlobeSt.com: What attracted you to 5613 DTC in Denver?
Ballard: There are three primary attributes that make Denver and this recent purchase an attractive investment. First, the region continues to have strong job growth, which results in tenant demand. Next, we have a value-add strategy for 5613 DTC. This is a vintage 1980s building that we purchased at approximately half of replacement costs. It has not had the necessary capital to compete with newer, class-A product in the region. We intend to improve the building significantly to bring it up to class-A standards. Lastly, one of the most attractive attributes of this building is that it is transit oriented and situated in an excellent location. 5613 DTC is adjacent to a light-rail station in one of Denver’s premier business parks. The immediate office submarket is the largest in the Denver metro and anticipates completion of a $1.5 billion mixed-use project that will continue to increase the attractiveness of this location.
GlobeSt.com: Which other markets are you eyeing, and why?
Ballard: There is still a lot of opportunity to find quality assets at good prices where we can execute a business plan that adds value to the investment. While we are still active in some California markets, we continue to look for additional opportunities in Texas, Phoenix, Denver and Salt Lake City.
GlobeSt.com: What else should our readers know about your investment strategy for 2017?
Ballard: As we enter into our 18th year, Buchanan Street continues to innovate and seek new investment opportunities for our diverse investor client base. In addition to direct acquisitions, we continue to look for bridge-lending opportunities in the West in the $5-million-to-$25-million range. We fill a void for transitional properties or assets that need rapid execution. We will also be more active in the multifamily investment space in Salt Lake City and Denver.
By Katherine Feser
While Duke Realty is shedding its suburban office assets across the country, Buchanan Street Partners is in acquisition mode.
The Newport Beach, Calif.-based investment firm has added a third local building to its portfolio with the purchase of Sam Houston Crossing II, a 160,000-square-foot office building at 10344 Sam Houston Park.
The building, completed by Duke Realty in 2013, is fully leased by Forum Energy Technologies, Pemex and First American Title Co.
Distress in the energy sector, as evidenced by a glut of empty office space, has brought values down an estimated 10 to 15 percent from peak levels of 2013 and 2014, said Matt Haugen, vice president at Buchanan Street Partners.
A fully leased building with tenants committed for at least four more years made the Sam Houston Crossing building attractive. Also, the company was familiar with the area, having previously owned nearby Beltway 8 Corporate Centre 3 and 4.
“We were able to get the cash flow in place but don’t have to take any near-term risk,” Haugen said.
Houston’s office market might take anywhere from 18 months to four years to fill the space given back by the energy industry over the last two years, Haugen said.
The company’s other local properties, which cater to smaller tenants, are doing well, Haugen said. The 2100 West Loop building, which has undergone $3 million in improvements, is 90 percent leased. The Offices at Kensington in Sugar Land is 98 percent leased.
Buchanan Street Partners has purchased a number of buildings in Dallas and San Antonio over the last two years, but this is its first in Houston since 2013. The company has invested in all types of real estate in Houston over the last 15 years.
The sale, handled by Jared Chua of CBRE, represents one of the final suburban office buildings to be sold by Duke Realty. It recently sold buildings in Washington, D.C., and Indianapolis while turning its focus to industrial and medical properties. Indianapolis-based Duke Realty owns several industrial properties across the Houston region.
OC-based Buchanan Street Partners has closed on two west coast office buys, in Denver and Houston. The properties total 384k sf in combined size.
In Denver, Buchanan Street Partners purchased 5613 DTC, a 224k sf, transit-oriented office tower located at 5613 DTC Pkwy. The building was sold by SteelWave LLC.
Buchanan Street plans to complete extensive improvements that include investing significant capital in tenant spaces, common areas and building systems. Additionally, the company will look to strategically improve the tower’s fitness center, lobby and elevators, cafe, conference center, parking deck, and outdoor patios. The building is currently 80 percent occupied with available suites ranging from 2k sf to 17k sf.
The 12 story tower is situated in a highly prominent location adjacent to the I-25 Fwy and within walking distance to the Orchard Light Rail Station. 5613 DTC is within the Denver Technological Center (DTC) in Denver’s Southeast office submarket, the largest submarket in the Denver metro. Denver’s Southeast region consists of 34 msf of office space and is home to many Fortune 500 companies that are attracted to its proximity to executive and employee housing, a strong retail amenity base and accessibility via multiple transit options.
Tim Richey, Mike Winn and Chad Flynn of CBRE represented the seller in the transaction. Buchanan Street represented itself. Terms of the deal were not disclosed.
In Texas, Buchanan Street Partners acquired Sam Houston Crossing II, a 160k sf office building
located at 10344 Sam Houston Park Drive in Houston. The asset was sold by Duke Realty for
an undisclosed price. This is Buchanan Street’s sixth acquisition in Texas in the last 24 months.
Sam Houston Crossing II is a three-story office building that is 100 percent leased by subsidiaries of Forum Energy Technologies; PEMEX; and First American Title Company. The property has frontage along Texas-8 Beltway between US-290 and Texas State Highway 249, in a location central to housing ranging from entry to executive level.
Jared Chua of CBRE represented the seller in the transaction. Buchanan Street represented
BY LISA BROWN
HOUSTON—There is optimism due to a diversified economy beyond energy resulting in net positive job growth during the last 18 months, a rebound of the energy sector will stimulate added job creation and population in the region is increasing.
There is an increasing opportunity in Houston’s office sector as a result of the distress in the energy sector. Although the energy sector has recovered significantly, valuations have dropped materially, according to Buchanan Street Partners.
“Houston has experienced difficult times due to the energy sector’s instability. However, we are optimistic about the market long term,” says Matt Haugen, vice president at Buchanan Street Partners. “Houston is one of the top 10 population centers in the nation and we believe in its long-term economy.”
Amid that increasing opportunity and optimism, Buchanan Street Partners has acquired Sam Houston Crossing II, a 160,000-square-foot office building located at 10344 Sam Houston Park Dr. The seller was Duke Realty and the price was undisclosed.
Sam Houston Crossing II is a three-story office building that is 100% leased by subsidiaries of Forum Energy Technologies, PEMEX and First American Title Company. The property has frontage along Texas-8 Beltway between US-290 and Texas State Highway 249, in a location central to housing ranging from entry to executive level.
“The market surrounding Sam Houston Crossing II is becoming an increasingly popular employment hub in Houston because of its central location to a wealth of housing. Large companies are making office decisions based on location and are attracted to this region because it can minimize employees’ commute times and appeal to a larger percentage of the workforce,” said Haugen.
This is Buchanan Street’s sixth acquisition in Texas in the last 24 months. Buchanan Street plans to seek opportunities in Houston and anticipates actively acquiring significant assets in Texas in 2017.
“Buchanan Street is optimistic about Houston’s office market because of a couple of reasons: The business community has diversified beyond energy, resulting in net positive job growth during the last 18 months even though the number of energy jobs fell, a rebound of the energy sector will stimulate additional job creation during the next 12 to 18 months and drive absorption in the area, and there’s a growing population in the region,” Haugen tells GlobeSt.com.
Jared Chua of CBRE represented the seller in the transaction. Buchanan Street represented itself.
As previously reported, year-end 2016 total office leasing activity settled at 8.9 million square feet, down significantly from 18.4 million square feet in 2014.
BY ARLEEN JACOBIUS
Buchanan Street Partners and the real estate firm's foundation, Buchanan Children's Charity, are looking for real estate professionals wanting to rock out to attend at an April 20 benefit concert featuring Cheap Trick.
The show, to be held at the House of Blues in Anaheim, Calif., will be the 5th concert partially underwritten by Buchanan Street Partners to benefit Music Matters, a program created in partnership with the Orange County Community Foundation to bring back music programs in Orange County public schools.
Some of the proceeds also go to Buchanan Children's Charity, which works
to improve the lives of and educational opportunities for children.
Past shows have featured such rock luminaries as Crosby, Stills & Nash; Third Eye Blind; Goo Goo Dolls; and Blues Traveler, said Robert S. Brunswick, CEO of Newport Beach, Calif.-based Buchanan Street Partners.
Mr. Brunswick declined to give the foundation's size, but he said it has donated $2.2 million total since it was founded in 2007. “We want to build a culture ... as a firm that provides good corporate stewardship and gives back to the community,” he said.
The annual concert has turned into the foundation's “signature event,” he said. Last year's concert raised $225,000 for the music program.
The fundraiser “is built around the industry, and we make a night of it.” Mr. Brunswick said.
By Jill Jamieson-Nichols
Buchanan Street Partners has acquired 5613 DTC with the intent of taking the high profile southeast suburban office tower to the next level.
Buchanan Street bought the 12‑story, 224,015-square foot office building, which sits along Interstate 25 at the foot of the Orchard light-rail station pedestrian bridge, from SteelWave LLC. Terms weren’t disclosed, but Arapahoe County records show the price was $32.75 million.
The buyer plans extensive improvements to attract and retain tenants looking for first-class space in Denver’s largest office submarket.
“This is an attractive investment for us because of the building’s strong in-place tenancy, excellent location, attractive view corridors and value-add potential,” said Chris Herthel, Buchanan Street Partners senior vice president. Herthel said, “5613 DTC is an amenity-rich property that is well-positioned to benefit from a comprehensive rebranding and capital improvements plan.”
Buchanan Street plans to invest significant capital into tenant spaces, common areas and building systems. It also is looking to strategically improve the tower’s fitness center, lobby and elevators, café, conference center, parking deck and outdoor patios. It expects its investment to amount to $6 million to $7 million over the next three to four years.
The building at 5613 DTC Blvd. is 80 percent occupied with available suites from 2,000 to 17,000 sf. InteliSecure Inc., Farnsworth Group, EPS Settlement Group, Wells Fargo Advisors and GE Johnson Construction Co. are among its 24 tenants.
Investor interest in 5613 DTC was quite strong, according to CBRE’s Chad Flynn, who handled the transaction with Mike Winn, Tim Richey and Jenny Knowlton.
“It checked the boxes for institutional buyers in that it has structured parking, is on light rail and had a real value add component to it because of the vacancy,” Flynn said. Building features include 9-foot ceilings; efficient, 21,000-sf floor plates; and 4:1,000 parking. The building was built in 1982 and renovated in 2006.
Denver’s approximately 34 million-sf southeast suburban office market houses numerous Fortune 500 companies that are attracted to its proximity to executive and employee housing, retail amenities and accessibility.
“We have seen companies increase their focus on commute times for employees and now making office location decisions based on proximity to housing. The light-rail location was an important factor in our decision to purchase this property because it provides tenant employees an alternative and efficient commute option,” Herthel said.
“The property amenities provide an intrinsic value to tenants that should further appreciate as future developments in the area and access to labor pools become key decision factors for companies,” he added. “We anticipate the repositioning of 5613 DTC will elevate the building’s profile above its current peers and be an attractive option for Class A office users.”
Buchanan Street Partners is a Newport Beach, California based real estate investment management firm that invests in debt and equity capital on behalf of institutional and private investors.
NEWPORT BEACH, CA—The CRE finance market is watching to see whether the Trump administration will advocate changes to Dodd-Frank and how those changes could impact the securitization and banking side of the market, Buchanan Street’s Matt Doerr tells GlobeSt.com.
The commercial real estate finance market is watching to see whether the Trump administration will advocate changes to Dodd-Frank and how those changes could impact the securitization and banking side of the market, Buchanan Street Partners VP Matt Doerr tells GlobeSt.com. The firm recently provided a $16-million loan to refinance 21845 Magnolia St., a 29‑acre industrial facility in Huntington Beach, CA, recently purchased by subsidiaries of Shopoff Realty Investments. The loan represents the company’s ongoing strategy to provide reliable bridge financing for value-add real estate.
Buchanan Street also recently provided an $18-million loan to a major Los Angeles-based development firm for the acquisition of an existing shopping center in Granada Hills, CA. The loan was funded through Buchanan Street’s proprietary bridge lending platform and provides additional funds for interest, pre-development expenses as well as “good news” funds if entitlements are secured. The borrower recognized the attractive in-place zoning, which may permit high-density commercial and multifamily use. The “by‑right” zoning designation greatly enhances the site’s redevelopment appeal.
Lastly, Buchanan Street continues to expand by recently adding Chris Cervisi as assistant VP to its debt-investments team to meet its growing business and market demand. Cervisi joined the team last month with more than eight years of experience structuring equity and debt and is responsible for sourcing, structuring and underwriting real estate debt investments. In his previous role, he was focused on office and retail acquisitions and asset management, including underwriting, market research, business-plan formulation, reporting of fund investments and dispositions.
We spoke with Doerr about these two transactions and the hiring of Cervisi, how they all relate to the company’s strategy going into 2017 and where he sees the private-lending market heading.
GlobeSt.com: How are the refinancing of the Huntington Beach industrial/land property, the acquisition loan for a San Fernando Valley shopping center to be redeveloped and the addition of Chris Cervisi related to your company strategy?
Doerr: These most-recently funded loans and the hiring of Chris are tangible indications of not only our platform and personnel growth, but the positive reception of the Buchanan Street brand within the bridge-lending business. These loans specifically affirm our Western US regional focus and adaptive structuring capabilities in customizing varied loan solutions. Chris’s diverse background on both the equity and debt side of the ledger allow us to further build out our talent base to serve our broker and direct borrower relationships.
GlobeSt.com: What type of growth do you envision for your company in the next year?
Doerr: Since our company’s inception of the mortgage-lending business, we have continued to grow our active pipeline and loan closings, which point to an increased production year for us in 2017. Anecdotally, we have seen a significant increase to our pipeline within the past 60 days aligned with the recent uptick in interest rates. In addition to our bridge lending, we also provide institutional mezzanine capital for larger projects. Both products are becoming more active within the construction lending area where banks have been negatively impacted by the increased regulatory environment.
GlobeSt.com: How do you see the future of the private-lending space?
Doerr: We believe that the private-debt-capital space will continue to capture more market share in the wake of HVCRE rules and other regulations. The CRE finance market is watching to see whether the Trump administration will advocate changes to Dodd‑Frank and how those changes could impact the securitization and banking side of the market; however, it’s unlikely that any changes will occur in 2017, and regardless, there will always be a need for predictable private capital to meet varied and customized borrower demand. There continues to be a need for capital that can provide structuring flexibility, responsiveness and certainty of execution. We pride ourselves on our discretionary, efficient and expeditious closing process.
GlobeSt.com: What else should our readers know about your company?
Doerr: As we enter into our 18th year, Buchanan Street continues to innovate and develop new investment products for our diverse investor client base. It is evident that real estate is becoming a significant part of an investor’s asset allocation, with its ability to offer fixed-income characteristics while providing tax advantages and an inflationary hedge. Accordingly, we are continuing to explore new property segments for portfolio diversification to satisfy our increased client demand.
Buchanan Street Partners in Newport Beach has provided a $16 million loan to refinance 21845 Magnolia St., a 29-acre industrial facility in Huntington Beach recently bought by subsidiaries of Shopoff Realty Investments. Buchanan Street financed roughly 50 percent of the acquisition cost, according to a statement. Shopoff is planning a large-scale mixed-use development at the site to include single-family homes, townhomes and open space as well as hotel, commercial and retail components. Buchanan Street’s nonrecourse first mortgage provides Shopoff new capital to support the pursuit of entitlements for the master-planned development.
Buchanan Street also provided a $18 million loan to a Los Angeles-based development firm for the acquisition of a shopping center in Granada Hills. The loan was funded through Buchanan Street’s proprietary bridge lending platform. The firm financed about 65 percent of the cost on a 12-month term.
The firm also added Chris Cervisi to its team as an assistant vice president. He will be responsible for sourcing, structuring and underwriting real estate debt investments.
NEWPORT BEACH, CA—Most people may not know that roughly 70% of commercial real estate is valued at $40 million or less, Buchanan Street Partners’ Matt Doerr tells GlobeSt.com. Doerr was recently appointed VP of the firm to lead the company’s growing bridge-loan platform under Buchanan Mortgage Holdings, the company’s proprietary lending business. His appointment comes at a time of increased lending activity, following the recent closing of three loans totaling $30 million. We chatted exclusively with Doerr about the firm’s bridge-loan program, which accommodates the middle market of commercial real estate financing.
GlobeSt.com: WHAT DO YOU HOPE TO ACCOMPLISH IN YOUR NEW ROLE WITH BUCHANAN STREET PARTNERS?
DOERR: First off, I was very excited about joining Buchanan Street because they have a great reputation and history as an active capital-markets participant in both the debt and equity space. What was appealing to me was their creativity and full capital-stack conversancy, and the opportunity to help lead and build the debt platform. My goal is to further Buchanan Street’s lending brand and presence within the western states and position our platform as a leading bridge/construction lender among sponsors and intermediaries. In this regard, we consider "sponsors" to be borrowers that are bringing forth a portion of equity and seek a larger portion of debt. Likewise, "intermediaries" is our term that represents the brokers that are in search of capital sources on behalf of borrowers. Moving forward, I hope to educate intermediaries and help them further their capital-solution options to their clients.
GlobeSt.com: TELL US ABOUT THE FIRM'S BRIDGE-LOAN PLATFORM AND WHY IT'S EXPANDING.
DOERR: Interestingly, most people may not know that roughly 70% of commercial real estate is valued at $40 million or less, within what is considered the “middle market.” We have built our bridge lending practice to accommodate this significant borrower base and believe that private lending with an institutional-quality experience will be in great demand.
That’s the backdrop, but more specifically to the current lending environment, Buchanan Street continues to see dislocation in the middle-market CRE lending space that is driven by an evolving regulatory environment and is impacting not only regulated banks, but also CMBS issuers and investors. As Dodd-Frank and Basel III implications continue to play out, more and more CRE owners/developers will seek flexible-debt platforms to provide reliable, custom-tailored capital solutions. Specifically, our product caters to a $5 million-to-$25 million loan request that can accommodate quick-close, bridge, acquisition and construction needs.
GlobeSt.com: WHAT INVESTMENT TRENDS DO YOU SEE EMERGING?
DOERR: We’re still seeing experienced sponsors find interesting and accretive real estate investments, so opportunities do exist. However, finding reliable and predictable acquisition or bridge capital has been a challenge, given some of the reasons I mentioned. Well-capitalized and responsive lenders can add value by offering thoughtfully structured quick-close capital or by providing non-recourse construction financing to experienced developers. Lately we’ve seen the small- to middle-market construction financing market really tighten, which has pushed more requests to private lenders. For example, industrial real estate in the Inland Empire is in high demand right now. If a developer wanted to build industrial and could commit 25% of the construction costs, a few years ago a bank could have provided that financing. Now, because of HVCRE regulations and other drivers, a developer in this situation is likely to source non-recourse capital in the private lending space.
GlobeSt.com: WHAT ELSE SHOULD OUR READERS KNOW ABOUT PROPRIETARY LENDING?
DOERR: We are a significant real estate owner and operator ourselves, typically on larger asset sizes, and therefore we are an active user of debt. So, we have built a lending platform that’s responsive to the broader CRE capital market environment, yet engineered to be flexible and provide sponsors and intermediaries with the certainty of execution that you need from a bridge lender. In today’s market, it’s important to understand a lender’s level of discretion over their capital and their approval process. Sponsors and intermediaries should be aware that opportunities to secure bridge capital still abound, and they should align themselves with a proven lender.
Newport Beach, CA-based Buchanan Street Partners is expanding its bridge loan platform and adding a key executive. Matthew Doerr joined to lead Buchanan Mortgage Holdings, the company’s proprietary lending business.
Doerr brings more than 13 years of experience underwriting and managing debt and equity assets in excess of $1 billion, including roles at MUFG’s Union Bank and iStar Financial. He will lead the structuring and underwriting of loans originating from Buchanan Mortgage’s balance sheet for acquisition, construction, redevelopment or project recapitalization across Western markets.
Buchanan Street Partners’ Tim Ballard notes that recent regulatory changes imposed on banks by the Federal government provides an increased “opportunity to participate in space that was previously controlled by banks.”
The company is experiencing increased lending activity, including three recent loans totaling $30 million.
By Candace Carlisle
California-based real estate investor Buchanan Street Partners intends to keep snapping up properties in major employment hubs in Dallas-Fort Worth as companies continue to relocate and expand in the region.
"We are continuing to look for more investments in the Dallas market," Matt Haugen, vice president at Buchanan Street Partners, told the Dallas Business Journal. "People have seen what we have done with our current investments and we are becoming recognized in the marketplace as having an active ownership with very responsive, thoughtful investors."
The two-building office complex sits adjacent to Dallas Love Field and was recently acquired by Buchanan Street Partners as part of a larger investment strategy.
Haugen said within the investor partnership at Buchanan Street Partners there's been a strong interest in Dallas-Fort Worth. In the last 16 months, Buchanan has acquired four office properties in central employment areas in North Texas.
Recently, Buchanan purchased Bluffview Towers, a two-building, 196,356-square-foot office complex at 3860 and 3890 W. Northwest Highway near Dallas Love Field Airport from Commercial Developments International for an undisclosed sum.
The firm wanted to acquire the property because of the increased passenger traffic at Dallas Love Field as executives take advantage of the close proximity of the airport to Dallas' urban core after the expiration of the Wright Amendment. Buchanan plans to put capital into overhauling the lobby and common areas of the building.
Compared with Preston Center office rents, Bluffview Towers has a normal delta of $6 per square foot to $8 per square foot rental rate, which will attract companies looking to land in close proximity to the airport and executive homes, Haugen said.
"Dallas is such an important market to us really because of job growth," he told me. "You need job growth to really enhance rental rates and year-over-year job growth in Dallas is 4.6 percent, which is far ahead of the national average and one of the critical numbers we look for when we make an investment."
Haugen said the investment firm would like to buy two additional properties by the end of the year in Dallas. That bullish investment is expected to continue into next year as Dallas maintains a sustainable trajectory of moderate growth, he added.
With limited new construction, in part because banks aren't willing to lend on many speculative projects, there's a rush on buying existing commercial real estate.
"Companies are coming out of California and into Texas and so we see a long-term viability into buying and investing in this marketplace," he said.
By Lisa Brown
DALLAS—The law expiration is drawing more corporate users seeking proximity to the airport and executive housing communities such as Bluffview and Preston Hollow.
According to Buchanan Street Partners, Dallas Love Field experienced an 87% increase in passenger traffic year-over-year in September 2015. This increased activity followed the October 2014 expiration of the Wright Amendment, a 1979 federal law that limited long‑haul flights out of the airport.
Bluffview Towers, a 196,356-square-foot two-building office property adjacent to Love Field Airport has been acquired by Buchanan Street. The Love Field traffic bump-up prompted Buchanan to purchase the buildings for an undisclosed amount from Commercial Developments International (CDI).
“We have noticed a significant change in the area surrounding Love Field. The surge in traffic and business at the airport was a major factor in the buildings’ purchase,” said Matt Haugen, vice president at Buchanan Street Partners. “We anticipate local expansion as corporations view this area as a more preferred location, both for daily commutes and accessibility to the airport for business travel.”
Bluffview Towers is located at 3860 and 3890 West Northwest Hwy., near the affluent Bluffview and Preston Hollow neighborhoods, within three miles of Preston Center, an 800,000-square-foot retail and dining center. Bluffview Towers is currently 82% occupied with several long-term tenants. The property features an Embassy Suites hotel on site, which was not included in the purchase. Buchanan Street has plans for lobby improvements and tenant common area upgrades to bring the project up to class-A standards.
Haugen tells GlobeSt.com: “Additionally, the rapidly growing rental rates in Uptown and Preston Center have caused the options around Love Field and specifically Bluffview Towers to become an attractive option for users that want to locate in the area for a more affordable price. We are going to reposition these buildings and bring them up to a first-class standard. It seems these two buildings have flown under the real estate community’s radar, and we plan to leverage the growth at Love Field to elevate the building and put it on the map as another Buchanan Street building in Dallas. We believe in the Dallas market.”
The Wright Amendment limited flights between Love Field to airports only within Texas and its four neighboring states: Arkansas, Louisiana, New Mexico and Oklahoma. Its expiration allows flights into Love Field from major cities such as New York, Denver, Los Angeles and Washington, DC. It is expected to draw more corporate users seeking proximity to the airport and executive housing communities such as Bluffview and Preston Hollow.
The Bluffview Towers purchase marks Buchanan’s fourth acquisition in the Greater Dallas area in the last 16 months. Buchanan Street also recently purchased several other buildings that are poised for growth as a result of positive absorption and infrastructure improvements. The properties include Tollway Plaza, a prominent two-building property in Addison, TX, Richardson Office Center I & II in Far North Dallas and Granite Tower in Northwest Dallas along LBJ Freeway.
Jack Crews, Evan Stone and Lauren Zimmer of JLL represented CDI in the transaction, while Buchanan Street represented itself.
By Robert Brunswick, CEO of Buchanan Street Partners
Last year, the Federal Deposit Insurance Corp. (FDIC) implemented its Regulatory Capital Rules, a new set of directives intended to address regulatory deficiencies that contributed to the 2008 banking collapse. The regulations impose significant limits on bank acquisition, development and construction (ADC) loans, and create an opportunity for loan originators, specifically nonbank lenders, to expand their ADC offerings.
The most notable change requires banks to increase the amount of capital set aside for ADC loans that exceed loan-to-completed value standards or do not comply with minimum real-cash equity investments. The nonconforming loans affected by these regulations are characterized as High Volatility Commercial Real Estate (HVCRE) loans. The new laws were first released in October 2013 and implemented at the start of 2015.
The new reality
Banks that were major players before the recession have returned to the market, but on a limited and inconsistent basis. Lenders have been producing ADC loans at a significantly lower volume than the peak in 2007, causing a decline in the market share of ADC loans originated by regional and community banks.
Under the Regulatory Capital Rules, banks must categorize an ADC loan as HVCRE if it fails to meet several conditions. Chief among them are the following: The borrower has contributed at least 15 percent of the appraised-as-completed value of the asset before receiving bank financing; and the loan-to-value ratio of the financing does not exceed 80 percent. Also, loans for land development must not exceed 75 percent LTV.
This new ruling affects bank offerings on HVCRE loans nationwide, limiting borrowers’ access to capital — and leaves the door open for private lenders to swoop in, especially those able to serve unmet demand with flexible loan structures and efficiency.
Clarifying the rules
The FDIC has issued clarifications of the law over the past year. First, if a loan is initially classified as HVCRE financing, it remains so until the acquisition, development and construction loan is refinanced with a permanent loan. Nonetheless, a loan cannot be classified as permanent if it is based on the “as completed” value of the project. Furthermore, these clarifications included a distinction between the “as completed” and “as stabilized” values, so that the latter value cannot be used to determine whether a loan meets the definition of HVCRE financing.
Clarifications also established that borrowers may not withdraw capital generated internally by a property during the term of an HVCRE loan. Neither unrelated real estate assets nor grants from state, federal or municipal governments, or nonprofits can be included as part of the borrower’s 15 percent equity contribution; and preconstruction deposits on condominiums cannot be counted as a borrower-equity contribution.
Also, junior liens collateralized by the property, cannot be considered part of the 15 percent contribution. It is not clear yet whether mezzanine loans secured by partnership interests and originated by a lender unrelated to the bank will circumvent this rule. Borrowers are, however, permitted to include land contributed to a development project as a part of the required capital. The value of this contribution must correspond to the borrower’s real-cash equity in the land. For example, if a borrower purchased a site in 1980 and since entitled it, the cost basis is the original land purchase price plus the entitlement expenses. This is a major shift in bank regulations, creating a void that can only be filled by nonbank construction lenders.
A borrower’s contributed capital can include soft costs, such as brokerage fees, marketing expenses or costs of feasibility studies. Project costs paid to related parties for developer’s fees, leasing expenses and brokerage commissions, and management fees may be included in the soft costs — provided they are reasonable in comparison to fees paid to third parties for similar services.
The new regulations do not preclude banks from originating HVCRE loans. In the wake of their implementation, however, some banks may determine that HVCRE loans will not generate sufficient returns as compared to alternative investment options because of the additional costs associated with higher reserve requirements. This situation presents greater opportunities for flexible, nonbank lenders to move into the space.
Impact on Lending
The regulations have created a competitive advantage for private lenders in funding high-leverage construction loans, construction mezzanine loans, and highly structured bridge and land-acquisition financing.
A study by Joseph Rubin, Stephan Giczewski and Matt Olson of Ernst & Young LLP pointed to several significant effects of the new regulations:
- Higher capital requirements from the borrower could result in banks shifting assets away from the commercial real estate sector;
- Interest rates could increase to account for the increased costs; and
- Borrowers may be forced to shift to higher-cost private lending sources.
Although the new capital regulations impose limits on bank lending, banks are not out of the picture. According to the Ernst & Young study, a minority of commercial real estate loans are likely to fall into the definition of HVCRE because banks already avoid loans with LTVs of 80 percent or above, and most borrowers acquire development sites simultaneously with, or just prior to, the closing of the acquisition, development and construction loans.
Even among nonbank institutions, there are relatively few lenders that specialize in loans with LTVs above 80 percent. But there is demand for such loans, as well as opportunities for nonbank lenders. Their biggest advantage is the ability to structure flexible debt more quickly than banks, and commit to deals while banks are still evaluating them.
Some other situations where nonbank financing is a good fit include:
- A borrower has owned the land for a significant period of time, but has a very low real-cash basis;
- An asset has increased in value because of rezoning, or the entitlement process;
- A borrower seeks more than 80 percent of cost-construction financing for a preleased, investment-grade, credit-tenant building;
- A borrower requires cash out from unit sales to fund unrelated projects — for example, a situation in which a condominium developer previously arranged an 80-20 percent split of unit-sale proceeds to pay a principal or dividends; and
- A bank rejects a borrower’s assertion that developer’s fees included as part of the contributed equity are justified by the market (a standard that has yet to be defined by regulators).
Cadence Capital Investments purchased five buildings on Sunset Blvd in Hollywood with plans to deliver a multi-story building that is pre-leased to upscale regional grocer Gelson’s Market. The purchase was funded with a $12.9 mil loan provided by Buchanan Street Partners.
Gelson’s choice for the seven-parcel assemblage was based on the location’s high traffic count, at the intersection of Sunset and Gardner St, plus affluent area demographics. The new store location will be Gelson’s second in Hollywood, following the success of its West Hollywood store. A first quarter 2018 opening is planned.
“This was an attractive investment because of the project’s irreplaceable location in an area of Hollywood that is experiencing substantial redevelopment and revitalization,” said Mark Reese, vice president of Buchanan Street Partners. “Cadence Capital Investments is working on a truncated timeline to meet the increasing demand in the surrounding neighborhood.”
A low retail vacancy of 4.4 percent in the West Hollywood market speaks to the high demand by retailers, punctuated by lease rates of approximately $60 per-square-foot. The immediate neighborhood is undergoing a redevelopment renaissance, with new retail shops, restaurants and mixed-use developments either in progress or planned.
“As we grow our active lending platform, this high profile project was the perfect transaction to kick off 2016,” said Reese. “There is currently an increase in opportunity for private lenders to provide acquisition, development and construction loans due to regulatory changes imposed on banks by the Federal government.”
Buchanan Street has invested and structured approximately $17 bil on behalf of institutional and private investors across a broad range of equity and flexible debt real estate investments throughout the United States. In the last year, the company has funded more than $77 mil in loans in Nevada, Oregon, California and Arizona.
By Kelsi Maree Borland
LOS ANGELES—The investor buys the Gateway Corporate Center in Diamond Bar, saying the market and surrounding markets, like Pomona and West Covina, are “historically very stable.”
Buchanan Street Partners has purchased the Gateway Corporate Center in Diamond Bar from Cornerstone Real Estate Advisers, an affiliate of an institutional buyer. The sales price was not disclosed, however, sources unrelated to the deal say that the investor purchased the property from $44 million. While this is Buchanan’s first Diamond Bar purchase, it knows the surrounding areas well and was attracted to the purchase for the strong location.
“This submarket is historically very stable and remains well occupied relative to other submarkets in Los Angeles, and we think that is largely a function of its central location and the ability of employers to draw employees from a lot of different areas surrounding this property, whether it is from L.A. County, Orange County or the Inland Empire,” Chris Herthel, SVP at Buchanan Street Partners, tells GlobeSt.com. “That is what initially attracted us and we don’t think that will change in the future. We have been active in this market, and we will continue to look for additional opportunities.”
Buchanan Street focuses on the second-tier market, where Herthel says that they can buy below replacement cost with less competition than more primary Los Angeles markets. “We are very active in mid-market properties when it comes to size, so that is anywhere from $30 million to $50 million in high-quality office properties throughout the US,” he adds. “This property fits that profile perfectly. It is a good size, and it is best in class in a good infill stable market that produces consistent cash flow out of the box. There are some improvements to be made as well, whether it is through renovation or a little bit of lease up. This property really checks all of those boxes.”
The property is in good condition and has been institutionally owned and maintained. It has 94% occupancy, so there is some upside with room for additional leasing and to push rents. Herthel says that the may also do some light renovations to the lobby and other common areas as well as the building systems. The investor will hold the property in the medium term, as is typical for its investment strategy.
Jeff Cole and Ed Hernandez of Cushman & Wakefield represented both the buyer and the seller in this transaction.
The Paradise Valley Corporate Center, near Cactus Road and Tatum Boulevard, sold for $37.4 million to a California-based real estate investment firm.
Cushman & Wakefield’s Executive Director Chris Toci and Director Chad Littell negotiated the sale to Buchanan Street Partners, and no other outside broker was involved.
The office complex is currently 94 percent leased.
Paradise Valley Corporate Center is a Class A office project in the Scottsdale and Paradise Valley are, and has access to about 2.3 million square feet of walkable amenities and easy freeway access, Toci said.
The 4-story Paradise Valley Corporate Center was built in 2002, and has 198,534 square feet of office space, featuring large, flexible floor plates, spacious lobbies, ample glass lines, and an onsite deli.
“The property enjoys immediate access to approximately 2.3 million square feet of walkable amenities, convenient freeway access, an attractive Scottsdale address, and is surrounded by the highest demographics in metro Phoenix,” said Mr. Toci. The demographics in Scottsdale/Paradise Valley are the highest in metro Phoenix with average annual incomes of $109,000 in Scottsdale and $132,000 in Paradise Valley.
By Steve Brown
An investment partnership has purchased a 2-building office campus in Richardson’s Telecom Corridor.
Buchanan Street Partners of California and CarVal Investors of Minnesota teamed up to purchase Richardson Office Center I & II, a 238,301-square-foot campus located on Bush Turnpike.
The new owners plan to renovate the buildings, which are 90 percent leased to tenants including Boeing, Genpact and Avnet. “The location was one of the main reasons we were attracted to the property,” Buchanan’s Matt Haugen said in a statement. “Companies in search of a better real estate value have moved to Richardson because of its affordability and projected growth.”
The buildings are Buchanan’s second purchase in the Dallas area this year and were acquired from Principal Real Estate Investors. Terms of the acquisition were not disclosed. Gary Carr and Robert Hill of commercial real estate firm CBRE brokered the sale.
Buchanan has been in business since 1999 and recently purchased the Granite Tower on LBJ Freeway in Farmers Branch. CarVal Investors was originally a unit of agricultural giant Cargill. It became an independent subsidiary in 2006.
The Richardson Office Center sale is just the latest in a series of high-profile building purchases in Richardson. With thousands of new jobs moving to the area, investors are snapping up office properties in homes of capitalizing on rising rents.
By Cory Weinberg
Buchanan Street Partners’ origins may have started on its namesake road in San Francisco’s Marina District, but the private real estate investor has avoided office purchases in the city since 2008. Instead, it’s focused on making $15 million to $40 million buys in cheaper markets such as Ontario, California and Mesa, Arizona.
Now based in Newport Beach, the investment firm has jumped back into the Bay Area by buying office parks in less-sexy markets. It paid about $25 million each for two office parks in the region in the last two months: Rowland Plaza in Novato and the South San Francisco Business Center.
Robert Dougherty, a partner at Buchanan Street, said the properties fit the firm’s profile as a “special-situations buyer” that “doesn’t have billions of dollars to put out where we’ll pay market (rent) at whatever price.”
“We didn’t like the entry points we found in 2011 and 2012, and it took us a while to find the right place to get back in,” Dougherty said. “The Bay Area has been overpriced as a whole.”
Private real estate investors like Buchanan typically don’t have as much money to throw around as real estate’s big boys: publicly traded investment trusts, overseas buyers or institutional investors like pension funds or insurance companies.
But smaller investors have been finding more mid-market buys lately — purchases that range between $15 million and $40 million — according to research firm Real Capital Analytics.
As of mid-July, private investors are on pace to make nearly $900 million worth of mid-market office buys in the Bay Area this year, up from about $600 million last year and $400 million in 2012 and 2013. Less than a third of that is on pace to be in the city of San Francisco, with the remainder funneling into the Peninsula, North Bay, East Bay and some Silicon Valley cities.
Across the region, private investors have made the most mid-market office deals this year, representing 40 percent of buyers. Institutional investors made up 32 percent of the buys, according to Real Capital Analytics.
But while private investors have been selling more than buying in San Francisco proper in recent years, other markets are picking up the slack.
As office rents continue to rise, the Bay Area’s outer markets open investment doors to buyers looking for higher yields at lower prices, said Al Pontius, senior vice president of commercial property groups at Marcus & Millichap.
“Those communities and assets today are interesting. Twelve to 24 months ago, there would have been no interest,” he said. “There’s an expansion in the range of acceptability, and that’s coupled with a better yield that they could get.”
While investors may not want to “pay the freight” to invest in San Francisco, they have a bigger appetite for markets “considered riskier,” Pontius added.
In San Mateo County, average asking rents in the county were up 10 percent year over year last quarter, rising to nearly $48 a square foot each year. Smaller companies have also started to flock to the East Bay after getting priced out of San Francisco.
The North Bay is also gaining strength. Last quarter, Novato drew a $16 million buy of a 87,268-square-foot office building from private investor Ellis Partners.
The North Bay office market boasts its lowest vacancy rate (14.5 percent) since 2007, according to the brokerage DTZ. Though average asking rents have mostly stayed flat at $24 a square foot annually in the North Bay, they don’t come near to justifying new construction, and the area’s restrictions on development curb new office competition.
Dougherty of Buchanan Street said the 143,444-square-foot Novato office project Rowland Plaza is about 32 percent vacant, and it will get some renovations. He said he’d like the plaza, which is made up of government and healthcare tenants, to add technology or biotech firms to the mix.
“We’ve seen rents rising like a wave and it’s emanating across the Golden Gate and moving across Highway 101,” he said. “In Marin, tenants are migrating north because they’re getting priced out of these southern Marin markets.”
By Anna Caplan
SAN ANTONIO, TX—While the San Antonio market may not get the same attention as Texas’ major markets, Tim Ballard, co-founder and president of Newport Beach, CA-based Buchanan Street Partners, believes in the South Texas city.
“The San Antonio office market continues to experience slow and steady growth,” Ballard told GlobeSt.com. “Many other Texas markets have much higher levels of growth that causes investors to buy based upon aggressive expectations of future rents and values. Due to the less robust forecast for future growth in San Antonio you have an opportunity to achieve a higher current return in the form of cash flow versus aggressively betting on the significant value appreciation.”
Ballard and his firm recently announced its fifth purchase in the market: San Pedro Plaza, a 163,764-square-foot office building located at 7330 San Pedro Ave. Buchanan Street will make extensive improvements to attract new tenants during a time of positive absorption in the region.
“We are currently in the design phase of extensive physical upgrades for San Pedro Plaza, and are anticipating construction completion within six months,” Ballard says. “We plan to bring the building out of the 1980s and into the 2010s with $4.5 million in improvements, which includes a significant portion dedicated to TI packages.”
Buchanan Street plans to significantly upgrade the lobby, restrooms and common areas. Additionally, Buchanan will be removing an adjacent retail building in order to provide more convenient access and additional surface parking. The building is currently 30 percent vacant with available suites ranging from 1,000 square feet to 18,000 square feet.
San Pedro Plaza is located in the North Central submarket near the intersection of Loop 410 and San Pedro Avenue; it is also less than 10 minutes from San Antonio International Airport,Alamo Quarry Market and North Star Mall.
Barbara Emmons and Todd Mills of CBRE represented the seller in this transaction. Buchanan Street represented itself.
By Dees Stribling
The lending volume for commercial deals in major markets of the Pacific Northwest is going to see "a significant increase" in the near- to mid-term, Buchanan Street Partners VP Mark Reese tells us. He gave us two major reasons.
The Fundamentals Are Right
Mark (snapped with Buchanan colleagues during a recent company hike in Palm Springs, CA) tells us the strong economy of the Pacific Northwest is causing tenants to expand and look for new space to attract and retain talent—not only in Seattle but also Portland and other regional markets. Also, tenants are flocking from their existing traditional offices to creative spaces, seeking a positive influence on their corporate culture. More flocking means more lending.
Changes in the Banking Industry
Mark adds that non-bank lenders (such as Buchanan) expect to see an increase in their volume as traditional bank lenders become more conservative due to stricter bank regulations. "Bank lenders today are focused on stabilized properties with strong in-place cash flow," he says. "This leaves a void for borrowers seeking to finance value-add acquisitions." Recently Buchanan closed a bridge loan for the acquisition of the 68k SF 2815 South West Barbur Blvd in Portland; the borrower, Run Our Dream, will transform it into creative space for the athletic apparel brand Under Armour.
By Kelsi Maree Borland
CULVER CITY, CA—Developer VCN has purchased the Surfas Culinary District in Culver City, CA, with plans to develop a 100,000-square-foot mixed-use property on the site. The developer purchased the property for $16 million and has secured a $10.2 million loan through Buchanan Street Partners’ high yield lending program to fund the development.
“Culver city is going through a massive renaissance that has attracted a significant amount of world-class creative office users, new restaurants and residential development,” Tim Ballard, president of Buchanan Street Partners, tells GlobeSt.com. “With that, many existing properties are being redeveloped to meet today’s tenant demands. The subject property is in a premier location, which has a lot of development or redevelopment in the immediate area that will be very attractive to office, retail and residential tenants.”
VCN plans to take advantage of the area’s high-density and mixed-use zoning in the area. The property is located at the intersection of Washington Blvd. and National Blvd., at 8777 Washington Boulevard in Culver City, near the EXPO light rail line. While the developer secures entitlements for the planned property, the Surfas Culinary District, who sold the site to VCN, will occupy a 13,206-square-foot retail property on the site.
Buchanan Street funded an 18-month term loan with a 65% loan-to-value. For Buchanan Street Partners, this is a relatively low loan-to-value. “Given the quality of the location, it was a very attractive basis,” says Ballard. “We are looking to provide capital to borrowers who have unique assets that aren’t readably financeable by banks, such as non-cash flowing assets, assets in transition, or assets that need a secure understanding of real estate to correctly identify the background and opportunity of the property. We finance “story” deals.”
Buchanan Street’s high-yield lending program is specifically designed to provide funding for developments during the entitlement phase, which made VCN a great fit for the program. “VCN has a unique ability to pull this type development to foliation,” adds Ballard about why the developer is a great match. “This particular project was in need of a lender that had the ability to understand VCN’s vision for the development in order to effectively underwrite the loan.”