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Too Pricey?
By Sheila Muto - The Wall Street Journal
July 9, 2003 - Shorenstein Co. has shifted gears by buying a $20 million mezzanine loan, subordinated debt financing that has a higher yield than a regular mortgage, from CDC Mortgage Capital Inc.
The purchase is a first for Shorenstein , the San Francisco-based real-estate investment firm that focuses on acquiring top-tier office buildings in major U.S. cities.
"It may be a signal that Shorenstein is getting priced out of the market so they're looking at alternative investments," says Robert White Jr., president of Real Capital Analytics Inc., a New York real-estate research firm.
Robert Underhill, a Shorenstein executive vice president, says, "This is not a tectonic shift in philosophy for us." While he agrees that competition for the type of real-estate assets Shorenstein targets is stiff, "the primary focus of our business remains equity investment" in office properties.
During the first five months of this year, only $1.6 billion of Manhattan office properties were put up for sale and "brokers are reporting 30 or more bids for each deal in Manhattan," says Mr. White. Six properties totaling about $2.25 billion were put on the sale block last month, he adds.
CDC Mortgage originated a $356 million loan last year to Max Capital Management Corp., enabling the New York real-estate investment firm to buy out its partner in two Manhattan office properties, which total nearly 2.1 million square feet of space and are 98% occupied. CDC Mortgage then sold off portions of the loan.
Shorenstein purchased the "riskiest part of the loan," says Scott Zucker, managing director of CDC Mortgage.
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