Being an open-ended fund hasn't been much fun for the past six months. Mass investor redemption calls have left many managers in the unpleasant position of having to pull down the gates on their investors.
For an increasing number it also means the strategic sale of assets. ING Clarion found itself in just that position at the end of 2008, as it unsuccessfully juggled its assets against the rising need for additional liquidity.
Selling a portfolio of three office buildings in New Jersey, California and Florida to CBRE Investors' value-added property fund, CBRE Strategic Partners US Value 5, ING took a substantial hit in an effort to ease the pain for one of its open-ended funds.
“It was a strategic sale,” said managing director and head of acquisitions and development at Jeffrey Barclay.
Speaking at the Columbia Business School annual private equity and venture capital conference, he added that the firm accepted a 40 percent write-down on the assets in an effort to maintain liquidity in the openended fund. “We wanted to maintain flexibility. We even have some cash to begin the process of redemptions,” he added.
CBRE Investors, of course, is pretty pleased with the deal. The properties, located in East Rutherford, New Jersey, Glendale, Los Angeles and West Palm Beach, Florida, were purchased for roughly $200 million. According to sales data from Real Capital Analytics, ING spent approximately $320 million acquiring the offices between 2003 and 2006.
Mike Burrichter, principal of CBRE Strategic Partners US, declined to comment on financial details or the seller other than to confirm the sale was a “strategic move by an open-ended fund”.
The all-equity deal was closed in a matter of weeks, with discussions beginning in mid-November and a final deal signed on December 30. Burrichter says CBRE Investors underwrote the transactions with no rent growth assumptions for the whole of 2009 and 2010. “No one is underwriting rent growth in 2009,” he added.
The deal also marked a return to the past for CBRE Investors, with the firm having previously bought one of the properties, the 423,000-squarefoot Metropolitan Center, in New Jersey, in 2002. It sold the property to ING in December 2005.
Burrichter remembers the renovation work intimately, particularly the refurbishment of the lobby. “We must have interviewed six to eight architects on that renovation. I lived and breathed it. It's always nice though when you do a deal on a property and you know what you're getting.”