NAREIT Endorses Proposed Legislation

On May 22, the two chairmen of the tax-writing committees in the House and Senate, Representative Bill Archer (R-Texas) and Senator William V. Roth (R-Del.), together with the Clinton administration and Senator Daniel Patrick Moynihan (D-N.Y.), the ranking Democrat on the Senate Finance Committee, endorsed legislation to end certain abusive transactions tied to rules connected with the liquidation of real estate investment trusts. The targeted transactions typically involved a single company setting up a private REIT in which it owned all of the equity. The company would then liquidate the REIT. For the next three years, the company would not pay taxes on the REIT's distributions to it, while the REIT would not pay a corporate level tax on its earnings. The net effect was that neither the company nor the REIT paid taxes on the REIT's earnings during the liquidation period. The transactions, not utilized within the REIT industry, took advantage of the interaction between corporate dividend tax and REIT rules in an unintended manner. The proposed legislation would require all owners of a liquidating REIT to recognize the liquidating REIT's dividends as income, effective for distributions made after May 21, 1998. In a prepared statement, Steven A. Wechsler, NAREIT's president and CEO, said his association fully supported the proposed legislation.

Camden Completes Spinoff

Camden Property Trust has entered into a definitive agreement to form a real estate investment venture with a large corporate pension fund represented by Schroder Real Estate Associates. Under the terms of the agreement, the pension fund will own an 80% interest in the newly formed Sierra-Nevada Multifamily Investments, LLC. Camden will be the managing member of the LLC owning 20%, and will provide property management and asset management services to the company for a fee. Sierra-Nevada will own 19 apartment communities, primarily in Las Vegas, containing 5,119 apartment homes from the Nevada portfolio of assets acquired by Camden in its recent merger with Oasis Residential. The assets are valued at $248 million and will be financed with approximately 20% equity and 80% debt. Sierra-Nevada will assume $9.9 million of existing indebtedness. Camden is arranging additional debt financing of approximately $190 million to fund the balance of the investment. The debt is expected to be 10-year fixed-rate first lien mortgage financing with an average rate of approximately 7%. Camden anticipates using the estimated $228 million in net cash proceeds upon completion of this transaction to reduce its outstanding short-term debt.

Gotham Prevails

Shareholders of First Union Real Estate Investments recently voted in favor of proposals by Gotham Partners, L.P. by a margin of more than three to one. Gotham had proposed to expand the board of trustees by six, from nine to 15 seats. Gotham also had submitted nine nominees to fill the six new seats plus the three Class II seats that were up for election. Shareholders elected the following Gotham nominees to the board: William A. Ackman, principal, Gotham Partners Management Co.; Daniel J. Altobello, chairman of the board, ONEX Food Services; David P. Berkowitz, principal, Gotham Partners Management Co.; Stephen J. Garchick, president, The Evans Company; David S. Klafter, in-house counsel and principal, Gotham Partners Management Co.; Daniel Shuchman, principal, Gotham Partners Management Co., LLC; Stephen S. Snider, senior partner, Hale and Dorr, LLP; Mary Ann Tighe, executive managing director, Insignia/ESG; and James A. Williams, president, Williams, Williams, Ruby & Plunkett PC, and chairman, Michigan National Bank and Michigan National Corp. Separately, First Union announced the terms of a settlement with James C. Mastandrea, its former chairman and chief executive officer. First Union terminated Mastandrea without cause on May 18. Mastandrea and First Union signed a settlement agreement on May 18 stating Mastandrea will receive $3.4 million, which includes the spread on vested stock options based on the closing price of First Union shares on May 15 and the present value of three years of salary and benefits. Under his employment agreement, Mastandrea's termination caused restrictions to be removed on only 128,000 shares of First Union stock granted to him during his tenure with the company. Gotham Partners responded to the announcement of Mastandrea's termination stating, in part, that "to the extent that, as a result of such termination, Mastandrea is to receive anything more than he would have if he were terminated for cause, we will seek to hold personally liable all those who participated in this action."

Mack-Cali Heads West

Mack-Cali Realty Corp. recently announced a series of what it called "opportunistic" transactions valued at $121.1 million. The transactions include: (1) a joint venture development agreement to form a limited partnership with Highridge Partners, a California-based real estate company, to initially develop four office and office/flex properties totaling 369,000 square feet in Southern California. Mack-Cali will invest $19.2 million toward the projects. The company told analysts it projects unleveraged stabilized yields of approximately 12% on the development of the four properties. The Highridge joint venture calls for the development of 369,000 square feet of office and office/flex space in El Segundo and San Diego. The development costs, estimated to total approximately $56.4 million, will be funded by an investment, as noted, of $19.2 million by Mack-Cali using cash and existing credit facilities, $10 million in cash and land contribution by Highridge Partners, and the balance by a construction loan to the partnership. (2) the acquisition of a 49.9% interest in Convention Plaza, a 305,000-square-foot office building in San Francisco. Mack-Cali acquired its interest in the building from Larry Feldman, one of the property's original developers, at $190 per square foot, which it said represents two-thirds of replacement cost (well below the price for recent property sales in San Francisco's CBD market, it added). Mack-Cali initially valued the deal at $58 million. It bought its interest using a combination of operating partnership units, and cash totaling approximately $10 million. The property is held in a partnership with Alvin Dworman owning 50%, Mack-Cali owning 49.9%, and Larry Feldman owning 0.1%. The occupancy rate of the property, which was 46.6% at closing, has increased to 63% due to new lease commitments for over 60,000 square feet obtained by the partnership. When the property is leased at current market rates, Mack-Cali expects unleveraged stabilized returns in excess of 10.5%. (3) the acquisition of One Ramland Road, a 232,000-square-foot vacant office/flex building, plus developable land, in Orangeburg, New York, for approximately $6.7 million, or $28.70 per square foot. The company plans to initiate an extensive renovation and leasing plan for the property. Mack-Cali expects the project to generate unleveraged stabilized returns in excess of 12% after renovation and leasing.

Meridian Industrial Closes DownREIT Transaction

Meridian Industrial Trust has closed on the second and final stage of its DownREIT transaction with Dallas-based Jackson-Shaw Co., acquiring an aggregate 988,000 square feet of industrial properties. Total consideration for the $52 million transaction included the assumption of $17.7 million of unsecured debt, issuance of 1,412,071 operating partnership units, and the payment of $23.3 million in cash.

Shurgard Forms Development Joint Venture

Shurgard Storage Centers and San Francisco-based Fremont Realty Capital have formed a joint venture that will acquire and develop up to 16 new self-storage properties developed by Shurgard. The joint venture will be capitalized with approximately $73 million to fund the acquisition of the properties and partnership operations. Fremont Realty Capital will contribute 90% of the equity. In a prepared statement, Shurgard noted that the creation of the joint venture "enables it to maintain its emphasis on growth through the development of properties while minimizing the earnings dilution normally experienced by the company between the opening of its new properties and their reaching stabilized operations." Shurgard anticipates purchasing the joint venture properties after December 31, 2000. Charles K. Barbo, Shurgard's chairman and CEO, said, "Our current plan is to do substantially all of our future developments through similar ‘off balance sheet' structures. If we are successful, we would essentially eliminate the dilutive effect on our funds from operations (FFO) that results from our development strategy." Barbo added that, assuming Shurgard enters into similar arrangements for the remainder of its 1998 and 1999 development plans, the REIT's FFO per share will grow 11% to 13% in 1999 over 1998.

Bradley To Acquire Mid-America Realty

Bradley Real Estate and Mid-America Realty Investments have executed a definitive merger agreement by which Bradley will acquire Mid-America. Upon consummation of the transaction, Bradley will acquire Mid-America's interest in 25 retail properties, increasing its ownership to 88 retail properties aggregating 14.7 million square feet in 15 states. According to the merger's terms, each of the 8.286 million shares outstanding of Mid-America common stock will be exchanged for 0.42 shares of a newly created series of Bradley preferred stock. The new Series A convertible preferred stock will have a par value of $25.00, thus stockholders of Mid-America will receive $10.50 of preferred stock for each share of Mid-America common stock they own. The preferred stock will pay an 8.4% annual dividend and will be convertible into shares of Bradley common stock at a conversion price of $24.49 per share (representing a 16% premium over the 20-day average closing price of Bradley common stock prior to the signing of the merger agreement). The preferred stock is redeemable for Bradley common stock after five years if the Bradley common stock is trading at or above the conversion price. Bradley also will assume all of Mid-America's outstanding liabilities, making the total purchase price approximately $153 million. The companies anticipate that the transaction will close during the third quarter of 1998. BT Alex.Brown is acting as financial advisor to Bradley in this transaction, and SBC Warburg Dillon Read is acting as financial advisor to Mid-America.

Berkshire Reviews Its Options

Berkshire Realty Co., a multifamily REIT, has engaged Lazard Freres & Co., LLC as advisor and Lehman Brothers Inc. as co-advisor to assist the company in the exploration and evaluation of strategic alternatives. These alternatives include the potential sale or merger of the company and the plan of liquidation that the company is required to submit to its shareholders on or before December 31 of this year.

Franklin Select Hires Prudential

Franklin Select Realty Trust, a publicly traded equity REIT advised by Franklin Properties, has retained Prudential Securities as its exclusive financial advisor to review strategic alternatives. David Goss, president of Franklin Select, said the company believes "it is prudent to reassess our overall business strategy as the REIT industry is moving rapidly to larger, more specialized, internally managed companies."

Meditrust Closes Cobblestone Deal

The Meditrust Companies has completed its previously announced acquisition of Cobblestone Holdings, the parent of Cobblestone Golf Group, and will exchange all of the outstanding preferred and common stock of Cobblestone for Meditrust shares. Meditrust also assumed and refinanced approximately $154 million of Cobblestone debt.

New Plan To Acquire Excel

New Plan Realty Trust and Excel Realty Trust have signed a definitive merger agreement. The new company, to be called New Plan Excel Realty Trust, will own a total of 332 properties (276 retail properties) comprising over 34.7 million square feet in 32 states. The merger agreement calls for Excel to declare a 20% stock dividend and then issue one share of Excel for each share of New Plan outstanding. Structurally, New Plan will be merged with a subsidiary of Excel and become a wholly owned subsidiary of Excel. The surviving company will be a Maryland corporation. The combined company will have approximately 93 million common shares outstanding. New Plan shareholders will hold approximately 65% of the combined company's common equity. Holders of New Plan's Series A cumulative preferred stock will be given a new New Plan Excel Series D cumulative preferred stock with substantially identical terms. The new company's board of directors will consist of nine members from New Plan and six members appointed from Excel. The senior management of New Plan Excel will be as follows: William Newman, chairman; Arnold Laubich, chief executive officer; Gary B. Sabin, president and chairman of the investment committee; James M. Steuterman, executive vice president and co-chief operating officer; Richard B. Muir, executive vice president and co-chief operating officer; and David A. Lund, chief financial officer. Upon Arnold Laubich's eventual retirement as CEO, the company intends and expects to appoint Sabin CEO. The company's headquarters will be based in New York with operational headquarters in New York and San Diego. After completion of the offering, the dividend policy is expected to provide for an initial annual dividend rate of $1.60 per share (which represents an annual dividend of $1.92 per pre-transaction Excel Realty Trust share). Morgan Stanley & Co. acted as financial advisor to New Plan. Merrill Lynch & Co. provided a fairness opinion to New Plan. Prudential Securities Inc. and Triton Pacific Capital acted as financial advisors to Excel. Prudential Securities Inc. provided a fairness opinion to Excel. The transaction is expected to close in August.

Reckson Sets Spinoff Date

The board of Reckson Associates Realty Corp. recently declared a special dividend consisting of common stock of Reckson Service Industries. Each common stockholder of Reckson will receive one share of RSI common stock for every 12.5 shares of Reckson Associates common stock as of May 26. The RSI dividend was distributed on June 11.

S&P Updates Index

Bay Apartment Communities and Avalon Properties have been replaced in the Standard & Poor's Composite REIT Index following the merger of the two firms in early June. Standard & Poor's also added Cornerstone Realty Income Trust to its REIT index in the residential property category. Based in Richmond, Virginia, Cornerstone focuses on multifamily properties in select markets in Virginia, North Carolina, South Carolina, and Georgia.

D'Arcy Named Chairman ... The board of directors of Bradley Real Estate recently elected Thomas P. D'Arcy as chairman. (D'Arcy is also Bradley's president and CEO.) Joseph Hakim, the former chairman, was named chairman of the executive committee. Hakim stepped down from his position as chairman of Bradley's board because of the change of ownership at Merchandise Mart Properties, his current employer. Hogan and McGrath Join Dresdner Kleinwort Benson ... Mary Hogan and Sheila McGrath have been named senior REIT analysts at Dresdner Kleinwort Benson North America. They were formerly with UBS Securities. Hogan and Benson will be working in DKBNA's New York-based broker-dealer unit, Dresdner Kleinwort Benson North America, LLC, where the U.S. Equities Group, headed by Mike Hanley and Gary Jacobs, is based.