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More commercial property IPOs on the way
2010-06-21 10:01:03 Source: Reuters

U.S. commercial property companies are likely to try to go public in greater numbers in coming months as they look to refinance billions of dollars of mortgage debt left over from the boom years of 2005-2007.

About $1.24 trillion of U.S. commercial real estate loans -- $1.02 trillion held by banks and $221.5 billion bundled into bonds known as commercial mortgage-backed securities -- will need to be refinanced over the next four years, according to Deutsche Bank.

Many lenders have little capacity to refinance or make new investments in these mortgages.

There are about 12 property real estate investment trust IPOs in the pipeline, according to Thomson Reuters research.

After the last big downturn, which started around 1990, 108 property companies went public over the following six years, according to the National Association of Real Estate Investment Trusts, while in the current bust that began in late 2007 only eight have launched IPOs.

A big reason for the dearth of IPOs so far is that ownership of property companies and their debt structures are much more complicated these days than in the 1990s, when many firms were family-run operations that arranged loans from a bank or savings and loan institution.

Today, commercial real estate is often held by funds owned by institutional investors and managed by third parties.

"You don't push a button and go public," Martin Cicco, senior manager and head of Real Estate Advisory Practice at investment bank Evercore Partners, said at the Reuters Global Real Estate and Infrastructure Summit this week.


James Koster, president of capital markets at Jones Lang LaSalle (JLL.N), said it could take a few months yet before companies will be confident enough to go to the market.

"Assuming we have a relatively stable summer, you're looking at a fall timeline for people to re-initiate at least some of the strongest strategies on the IPO side," he said.

Another reason for the slow deal flow is that borrowers have yet to feel the urgency to raise more capital because regulators have allowed lenders to extend loan terms until banks are healthy enough to absorb losses.

Also, some real estate companies that have tried to raise equity capital recently have been snubbed.

Welsh Property Trust Inc (WLS.N), owner of industrial and office properties, scaled back its plans for its roughly $350 million IPO in early June, and then shelved them altogether.

High-end hotel company Chesapeake Lodging Trust (CHSP.N), debuted in late January after first delaying its IPO and then shrinking it by 40 percent. Its shares now trade 14 percent below their reduced IPO price.

The biggest commercial real estate IPOs in the pipeline hope to raise as much as $575 million, according to Thomson Reuters data. Among them is Younan Properties Inc, which owns office buildings in Dallas, Fort Worth, Houston and Phoenix.

Hudson Pacific Properties, which owns office properties in Northern and Southern California, hopes to raise about $230 million in an IPO expected next Wednesday. The company will trade under the symbol "HPP" on the New York Stock Exchange.

With the Greek debt crisis, the "flash crash", and an uncertain economic outlook, investors have become much more jittery about IPOs in recent weeks. "The market was wide open until about six or seven weeks ago," said Cicco.

A number of new U.S. issues have been reduced in size, had their price range cut or have been postponed or canceled, although the success of the flotation of exchange operator CBOE Holdings Inc (BOBE.O) showed there was still appetite for new issues with a strong balance sheet and high growth potential.

In the property sector, America Realty Trust (ACE.N), an owner of refrigerated warehouses backed by billionaire West Coast investor Ron Burkle, said it was postponing its offering indefinitely.

Apartment owner Archstone is considered a particularly strong candidate for an IPO. Once publicly traded, it was taken private by Tishman Speyer and Lehman Brothers MERQ.PK in late 2007 in a deal worth $22 billion.

But it is part of the Lehman bankruptcy, and IPO plans must first get the go-ahead from the bankruptcy court and creditors Bank of America Corp (BAC.N) and Barclays Plc (BAC.N).

"My guess is it will be mid next year," Chico said.

Australia-based Centro's portfolio of 700 U.S. shopping centers is another potential candidate for a share sale.

The portfolio of shopping centers is chiefly anchored by grocery or drugstores. Centro acquired the properties when it bought New Plan Excel for $6.2 billion in 2007. Centro, too, is in the hands of creditors and an IPO will take time.


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