First Industrial to shut down European operations

Industrial developer and investor First Industrial is closing down its European operations as part a series of actions aimed at cutting costs on the back of tighter credit market conditions. The US REIT, which entered Europe just over a year ago, said on Thursday it is 'discontinuing its European operations' in line with its plan to reduce expenses. Managing director for Europe Jan Scheers would not comment on the decision on Thursday.

The group also announced additional cost reductions which will be achieved through further cuts in corporate and regional office staffing and other overhead costs. Interim group CEO Ed Tyler also warned that the company may deliver lower-than-expected results as the economic crisis in Northern America deepens. He said: 'A number of factors could impact our ability to deliver results in line with our assumptions underlying our updated guidance, such as interest rates, the economies of the United States and Canada, the supply and demand of industrial real estate, the availability and terms of financing to potential acquirers of real estate. There can be no assurance that First Industrial can achieve such results.'

In addition, the company said that Chief Financial Officer Mike Havala has stepped down and will be replaced by Scott Musil, chief accounting officer. Havala follows hard on the heels of CEO Michael W. Brennan's resignation in end-October.

Founded in 1994, First Industrial said last year it was entering Europe to capitalise on significant growth prospects in the logistics markets in particular of the Netherlands and Belgium. It also hired Scheers, a former Macquarie Goodman director, to lead its European expansion drive, opening offices in France and Germany in July. In early 2008 First Industrial announced a $475 mln joint venture with the California State Teachers' Retirement System (CalSTRS) to invest in logistics properties across Europe. The partnership's capitalisation was 35% equity and 65% debt. Credit facilities were provided by WestLB's New York branch.

CalSTRS, the second-largest public pension fund in the United States, had agreed to contribute 90% of the equity to be injected in the partnership. The two companies planned to invest an initial $170 mln in the venture and then be able to recycle capital back into the partnership through the sale of properties. The strategy may have proved more challenging as the investment market came to a virtual standstill in recent months. In early December CalSTRS was one of the investors offered an opt-out from one of Permira's private equity funds as the London-based group feared investors would fail to meet commitments amid the financial crisis.