THE 4 FOOD GROUPS – June 2006

RESIDENTIAL
Where the grass is greener
In the movie Caddyshack, Rodney Dangerfield’s character proclaims that the two biggest wastes of real estate are golf courses and cemeteries. The editors of Golf Digest would disagree.

For its June issue, the magazine conducted an analysis of 244 counties throughout the US in an effort to identify “America’s greatest golf-home towns” in eight different regions of the country. The article was part of Golf Digest’s special report on real estate. (The fact that a golf magazine has a special report on real estate, though distressing, may not be so hard to believe. According to the publication, golf was a deciding factor in almost a third of the 1 million vacation homes that were purchased in the country last year.)

The resort town of Myrtle Beach in South Carolina topped the list as the number one golf town in the US, as well as the best golf community in the Southeast. In the other regions of the country, the winners were: Scottsdale, Arizona (West); Austin, Texas (Southwest); Denver, Colorado (Mountain West); Sheboygan, Wisconsin (Midwest); Eastern Long Island, New York (Northeast/Mid-Atlantic); North Atlanta/Cherokee County, Georgia; and North of Tampa, Florida (Florida). According to the magazine, the selection criteria included the number and quality of golf courses, the number of golf days per year and course congestion. Other factors, presumably for the non-golfers in the family, were also considered: crime rates, airport access, nearby amenities and cost of living.

Living near, or even on, a golf course, however, is not always a life of leisure. In addition to profiling the best places to live, the magazine also spent some time looking for the “worst golf homes” in the country, those houses that are the most frequently bombarded by wayward golf balls. It found one house, situated along the right hand side of the driving range at the Royal Oak Golf Club in Titusville, Florida, whose owner claimed to have found more than 14,000 balls in his backyard over a six-year span.

OFFICE
A new home for CalSTRS
The California State Teachers’ Retirement System, which manages more than $140 billion in assets, is one of the leading pension fund investors in the private equity real estate industry—as of January, it had $8.3 billion of real estate investments, 37 percent of which were in non-core assets. No doubt the pension fund put that expertise to use when it came to selecting their new office space.

In April, the institutional investor announced the development of a new 400,000 square-foot building that will serve as the pension fund’s headquarters in West Sacramento. Groundbreaking will occur later this year with an expected completion date of spring 2009. The property, which will be located within the Raley’s Landing mixed-use development, a project that also includes restaurants, a hotel and recreational buildings, will cost $180 million to develop. An indicator of CalSTRS’ real estate due diligence: the pension fund spent two years looking for a new site.

RETAIL
Leaseback on aisle ten
Last month, Tesco, Britain’s largest supermarket chain, announced plans to raise up to £5 billion ($9 billion) over the next five years via the sale and leaseback of a portion of its real estate holdings. The company, which currently owns 85 percent of its properties, estimates that its real estate portfolio is worth 50 percent more than its net book value of £16 billion. The supermarket operator had originally considered putting its real estate holdings in a UK REIT.

The move by Tesco follows similar transactions by other US and European retailers who have monetized their property holdings. Last month, for example, three different private equitybacked companies sold and leased back a portion of their real estate holdings: Simmonds Restaurant, an operator of Burger King franchises, backed by The Cypress Group; Kings Super Markets, a grocery store chain which was acquired by Angelo Gordon; and ShopKo, a retailer bought last year by Sun Capital.

INDUSTRIAL
The benefits of NAFTA
As the debate over illegal immigration continues to rage in the US, one real estate investment firm is taking advantage of a different type of traffic between the US and Mexico. Last month, Dallas-based private equity real estate group Macfarlan Partners acquired a nine-property industrial portfolio in Texas and New Mexico for $37 million. The warehouses, which encompass a total of more than 750,000 square feet, are located in four cities along the US-Mexico border, as well as San Antonio.

“This portfolio includes properties strategically located along distribution routes carrying goods between Mexico and the United States, an area that we expect to see dramatic growth in coming years,” said PJ Brady, an acquisition manager at Macfarlan, in a statement.

According to Macfarlan, approximately 73 percent of the trade between the two countries follows a route through one of the cities where the industrial properties are located.