UNITED STATES - Shorenstein Properties plans to increase its appetite for mezzanine debt deals on office buildings over the next couple of months, to take advantage of the dislocation in the debt markets.
Shorenstein has, traditionally, mostly bought existing office buildings and sought to improve them new management and a new leasing strategy, but the real estate company has now closed two mezzanine debt deals and has a third in the works, according to Bob Underhill, managing director of the transactions group for Shorenstein.
"The mezzanine debt strategy is going to be a significant focus for us for the rest of 2007. We think there are going to be some good investment opportunities in the marketplace, with the dislocation that now exists," he said.
That said, Underhill believes this opportunity will not last long as he continued: "This is a short-term opportunity. There are some mezzanine debt commingled funds that will be closing after the first of the year. Once this happens, there will be a lot more competition in the marketplace and it will be more difficult to find deals."
One of the deals it has closed is a $50m (€35.1m) junior mezzanine loan on 660 Madison Avenue, a 23,600m2 office building in Midtown Manhattan which is 90% leased.
A second deal has seen Shorenstein buy a $40m subordinated debt loan on an office building called Moffett Towers in Sunnyvale, California - a new ‘class A' 27,430m2 office building under development.
A third deal is also in the pipeline for an office building in Washington DC which is expected to close in the near future, financing of which will come from its commingled fund, Shorenstein Realty Investors Nine LP.
The real estate company raised $1.3bn in equity for the fund from pension funds and a variety of other institutional investors earlier this year.