Getting a handle on what happens to real estate in varying economic scenarios is tricky because property markets haven’t been in such good shape as they are today (in terms of supply/demand balance) heading into any other recent economic downturn. (For one take on how property-linked stocks are likely to fare, see "Parting Shot" on page 88.) Nevertheless, in a recent report, researchers at Boston-headquartered Property & Portfolio Research concluded that recessions are definitely bad for real estate because they negatively impact demand, which in turn hurts rents and values.

That out of the way, PPR, which provides real estate research and portfolio strategy services to institutions, concluded that, in its view, the most likely economic scenario is a "soft landing." The firm’s best case scenario - which it says investors should consider 65 to 75 percent probable - is that economic growth will moderate through 2005. "However, gains in technology and continued emphasis on corporate profits should result in moderate annual GDP growth of approximately 3 percent."

PPR added that it is often helpful to see what could occur in the event of "severe economic weather." The report continued, "[i]dentifying those markets and property types most and least affected by a weakening economy can aid investors in balancing their portfolios in the event of an unlikely scenario. Clearly, more apartment markets are better protected from an economic downturn than are office, warehouse, and retail markets."

Like others, the PPR researchers stressed that the property market cycle will be much less severe than that of the early 1990s. The office cycle, they noted, will be the most changed. "While office properties would experience the largest decline in the event of a recession, there is little chance that more than a handful of markets would experience declines comparable to those of the early 1990s."

AMLI To Fall Short of Expectations
AMLI Residential Properties Trust recently told investors it expects funds from operations (FFO) for the fourth quarter of 2000 to be $0.68 per share, $0.04 less than the previously expected $0.72 per share. As a result, the company currently estimates full-year 2000 FFO to be $2.75 per share, again $0.04 less than the previously expected $2.79 per share.

The company also told investors it currently projects its full-year 2001 FFO per share to be in the range of $2.75 to $2.79. AMLI had previously provided earnings guidance of approximately $3 per share for this year.

Allan Sweet, AMLI’s president and co-CEO, said, "Notwithstanding the disappointing quarter, we currently expect our same-store NOI results for 2000 to reflect approximately 2.4 percent growth, and we are currently anticipating same-store NOI growth in 2001 of about 4 percent. Although we expect that our customary property operations and related business activities, including same-store operations, will generate about 8 percent growth in FFO per share in 2001, that growth is not translating into bottom line FFO expansion. There are two principal reasons for the difference. First, our current projections for 2001 do not include any gains from land sales or any fees from sales of co-investment properties, both of which occurred last year; and we are not currently projecting these additions to earnings during 2000 being made up from any other source during 2001. Second, we expect to reduce the amount of interest we capitalize and correspondingly increase the amount of interest we expense in 2001, related to the carrying of our land held for residential development as we defer development plans for some of those land parcels."

The differences in same-store community net operating income between expected actual results and AMLI’s fourth quarter internal projections, which is approximately equivalent to the $0.04 per share shortfall, is summarized in the table below.

Barclays and Cohen & Steers To Offer ETF
Barclays Global Investors is teaming up with Cohen & Steers Capital Management, which specializes in property-linked stocks and already offers several mutual funds, two closed-end funds, and institutional separate accounts, to launch an exchange traded fund, or ETF.

Barclays iShares Cohen & Steers Realty Majors Fund, which starts trading January 26 under the ticker ICF, is tied to Cohen & Steers Realty Majors (ticker is RMP), an index that Cohen & Steers launched at the end of 1998. Cohen & Steers Realty Majors is comprised of 30 of the largest REITs (see table). Last year, Cohen & Steers Realty Majors posted a 31 percent total return.

The offering will be Barclays’ (www.ishares.com) second targeting property-linked stocks. Barclays’ iShares Dow Jones Real Estate Index Fund (ticker is IYR) was launched on June 12, 2000.

CBL Closes Jacobs Deal
CBL & Associates Properties shareholders recently approved the acquisition of 21 malls and two associated centers from the Ohio-based Richard E. Jacobs Group for total consideration of approximately $1.3 billion.

In connection with the Jacobs transaction, the company’s shareholders approved the issuance of up to 13.94 million special common units (SCUs), which may be exchanged for shares of common stock on a one-for-one basis after a three-year lock-up period. The Jacobs transaction was contingent upon approval of the issuance of the SCUs. A separate proposal to amend the share ownership limits under the company’s current certificate of incorporation, to allow for Jacobs’ increased ownership of shares in the company, also was approved.

Chattanooga, Tennessee-headquartered CBL owns regional malls and community shopping centers primarily in the Southeast and select markets in the Northeast and Midwest. The company currently has a portfolio of 134 properties in 25 states totaling 36.4 million square feet, including 1.8 million square feet of non-owned shopping centers managed for third parties. The company has under construction five new projects totaling approximately 1.9 million square feet, including two malls, one community center, and two mall expansions.

Leasing News
Lehman Brothers Signs Long-Term Lease
Toronto-headquartered Brookfield Properties Corp. recently said that Lehman Brothers had signed a 20-year lease for 460,520 square feet at One World Financial Center in downtown Manhattan. (One World Financial Center is a 1.6-million-square-foot property. It is one of four buildings that comprises the World Financial Center complex.) The agreement covers the entire eighth floor, as well as floors 19 to 21 and 30 to 40 in the 40-story office tower, and provides Lehman Brothers with tower identification. The lease is in addition to a previously announced agreement between Lehman and Brookfield covering 102,000 square feet in the building. In aggregate, Lehman has now committed to 563,000 square feet at One World Financial Center.

Brookfield’s portfolio includes 50 commercial properties totaling 37 million square feet, including landmark properties such as the World Financial Center in New York and BCE Place in Toronto.

Catellus and marchFIRST Terminate Lease
Catellus Development Corp. has signed an agreement with marchFIRST to terminate its lease for a 270,000- square-foot office building at Mission Bay.

Under the terms of the agreement, all obligations for either party are terminated, and Catellus retains the initial security deposit of $4.5 million plus accrued interest. Catellus is continuing its plans to develop and lease the building.

Catellus owns one of the largest portfolios of developable land in the Western United States, capable of supporting over 49.7 million square feet of new commercial development and an estimated 14,800 residential lots and units.

Schwab Signs Deal With Mack-Cali
Mack-Cali Realty Corp. recently announced that Charles Schwab & Co. has fully preleased Harborside Financial Center Plaza 10, a 575,000-square-foot office property being developed by Mack-Cali on the Hudson River waterfront in Jersey City, New Jersey.

Schwab signed a new 15-year lease for 275,000 square feet of space at the building. This lease follows a 300,000-square-foot lease signed by Charles Schwab & Co. in October 2000. Harborside Plaza 10, which is expected to be completed in early 2002, will be the site of Charles Schwab & Co.’s new expanded East Coast regional headquarters.

Mack-Cali owns or has interests in 267 properties, primarily office and office/flex buildings located in the Northeast, totaling approximately 28.2 million square feet.

Acquisitions, Developments & Dispositions
CenterPoint Completes Acquisitions and Dispositions
CenterPoint Properties Trust has completed the disposition of 23 buildings totaling 582,058 square feet. In addition, the company completed the sale of two land parcels totaling nine acres. The combined consideration for these sales is $31.6 million, bringing 2000 dispositions to approximately $163 million. Proceeds from these sales will be redeployed into the company’s large pipeline of build-to-suit developments.

The company also has completed $63 million of new investments - $46 million of which were on behalf of its joint venture with the California Public Employees’ Retirement System (CalPERS) and LaSalle Investment Management. That brings CenterPoint’s total new investments and build-to-suit completions in 2000 to approximately $233 million and the Venture’s total investments in 2000 to approximately $103 million. (CenterPoint Venture LLC is the joint venture between CenterPoint, CalPERS, and LaSalle Investment Management.)

Chicago-based CenterPoint currently owns approximately 31 million square feet and an additional 2,400 acres of land upon which 24 million square feet could be developed.

Cousins Buys Property From Technology Company
Cousins Properties has acquired a 200,000-square-foot office building located within the Richardson/Plano submarket of Dallas for $25.4 million. The project is situated on approximately 15 acres, which will accommodate the development of an additional 60,000-square-foot office building. The company is pursuing the development of a second office building on the site, but has not yet committed to proceed with this phase of the project.

The existing four-story building, to be renamed The Points at Waterview, was designed by HKS Architects and completed in 1998. Located at 3400 Waterview Parkway in Synergy Business Park and just south of the George Bush Turnpike (SH190), the project is contiguous to the University of Texas at Dallas campus and situated in the heart of the Richardson Telecom Corridor.

The seller of The Points at Waterview is an affiliate of 3dfx Interactive, a technology company that recently announced plans to sell substantially all of its assets and liquidate the company. The affiliate currently occupies 89,050 square feet of space in the building, which it will vacate by July 2001. Cousins expects to release the vacant space in the first half of 2001. Cisco Systems is the next largest tenant and occupies approximately 65,000 square feet, with the current lease term expiring in 2005.

Based upon existing leases, Cousins expects a yield of approximately 9.75 percent per annum on the purchase price (including the cost of the development site) in the first quarter of 2001. Results after the first quarter will vary based upon the results of the re-leasing effort. If the re-leasing effort achieves budgeted levels, the yield per annum in the second quarter will be approximately 5.25 percent on the purchase price (due to "downtime" between old and new leases), with the existing building stabilizing at a yield per annum of just over 10 percent on the expected total cost in the third quarter of 2001.

Cousins’ portfolio consists of interests in 12.8 million square feet of office space, 3.6 million square feet of retail space, 0.9 million square feet of medical office space, and over 300 acres of land for future commercial development.

Weingarten To Buy Burnham Centers
Weingarten Realty Investors has agreed to acquire 19 supermarket-anchored shopping centers from Burnham Pacific Properties for $145.5 million in cash and the assumption of a loan with a balance of approximately $132 million.

Weingarten management told investors during a recent conference call that the 19 properties, which are over 96 percent leased, are all located in California and aggregate approximately 2.5 million square feet. Specifically, the majority of the centers (11) are located in the San Francisco Bay/Sacramento area, while six are in and around Los Angeles.

Andrew Alexander, Weingarten’s president and CEO, stated, "We are particularly excited about the anchors, which include Ralph’s (Kroger), Albertson’s, Safeway, Raley’s and Food 4 Less (Fleming Company)." Alexander added that the properties include other well-known anchor retailers - with which Weingarten already has long-standing relationships - including, Target, Kmart, Home Depot, and Walgreens.

Alexander estimated that Weingarten will achieve a return on its investment in excess of 10 percent in 2001, with additional upside through contractual rent steps and market increases as leases mature.

Houston-based Weingarten owns 254 properties in 14 states, primarily in the Southwest. Its portfolio includes 197 neighborhood and community shopping centers, 55 industrial properties, one apartment complex, and one office building. In aggregate, the portfolio totals 30 million square feet.

AMLI Joint Venture Targets Atlanta
AMLI Residential has entered into a joint venture with Northwestern Mutual to develop and own AMLI at Milton Park in Alpharetta, Georgia, a northern suburb of Atlanta. The joint venture is structured such that cash flow and sales proceeds will be shared - 75 percent to Northwestern Mutual and 25 percent to AMLI Residential until certain benchmarks are achieved, at which point AMLI will receive an increased portion of the cash flow and residual interest.

AMLI at Milton Park will be comprised of 461 apartment homes set on a 23-acre site located on North Point Parkway, just north of North Point Mall. The community is set within Milton Park, a 108-acre, mixed-use development, which will include office and retail components, as well as 150 single-family homes.

AMLI recently began construction on AMLI at Milton Park, which will contain over 440,000 rentable square feet in eight buildings, with 318 (69 percent) one-bedroom and 143 (31 percent) two-bedroom apartment homes. The apartment homes will average 955 square feet in size. The first apartment homes are expected to be available for occupancy in the fourth quarter of 2001, with final construction and stabilization scheduled for the fourth quarter of 2002. Community amenities will include a swimming pool, state-of-the-art fitness center with aerobics room, media center, and resident business center. The total project cost is estimated to be approximately $35 million.

Chicago-based AMLI’s portfolio includes 67 apartment communities containing 26,147 apartment homes, with an additional 2,845 apartment homes under development or in lease-up in eight locations. AMLI Residential focuses on the development, acquisition, and management of multifamily communities in the Southeast, Southwest, Midwest, and Mountain regions of the United States.

Offerings & Financings
BRE Properties Prices 10-Year Notes
BRE Properties recently priced a $250 million offering of senior unsecured notes under its existing shelf registration statement. Interest on the notes is payable semi-annually on July 15 and January 15, and will mature on January 15, 2011. The 10-year notes, rated Baa2 by Moody’s Investors Service, BBB by Standard & Poor’s, and BBB+ by Fitch, were issued at 99.582 percent of par value, with a coupon of 7.45 percent and a yield to investors of 7.51 percent.

The company will use the net proceeds of approximately $247.3 million to repay amounts outstanding under the company’s unsecured credit facility and for general corporate purposes.

BRE Properties directly owns and operates 69 apartment communities, totaling 19,426 units in California, Arizona, Washington, Oregon, Utah, Nevada, New Mexico, and Colorado. BRE currently has 15 other apartment communities in various stages of development and construction, totaling 3,567 units, and joint venture interests in 20 additional apartment communities, totaling 4,548 units.

Simon Sells $500 Million of Unsecured Notes
Simon Property Group’s partnership subsidiary Simon Property Group, L.P. has completed the private placement of $500 million of debt securities. The issue included $300 million of 73¼8 percent notes due 2006, and $200 million of 73¼4 percent notes due 2011. All securities in the offering were rated Baa1 by Moody’s Investors Service and BBB by Standard & Poor’s.

Net proceeds from the offering will be used to repay existing indebtedness under credit facilities obtained by the company in order to complete its acquisition of Corporate Property Investors. The securities were placed by Merrill Lynch & Co. and J.P. Morgan, joint bookrunners, and Banc of America Securities LLC, Salomon Smith Barney, and UBS Warburg LLC, co-managers, as initial purchasers who re-offered the notes to qualified institutional buyers pursuant to Rule 144A.

Headquartered in Indianapolis, Simon focuses primarily on the ownership/development of regional malls and community centers. It currently owns or has an interest in 252 properties containing an aggregate of 185 million square feet of gross leasable area in 36 states and five assets in Europe. Together with its affiliated management company, Simon owns or manages approximately 191 million square feet of gross leasable area in retail and mixed-use properties.

People & Places
Post Properties Names New President... David P. Stockert has joined the company as president and chief operating officer. Stockert replaces Jeffrey A. Harris. Stockert most recently served as senior vice president and chief financial officer of Atlanta-based Weeks Corp., where he played a central role in the July 1999 merger between Duke Realty and Weeks that created Duke-Weeks Realty Corp.

Richard C. Conti Promoted to President of Boykin Lodging... Conti, the company’s chief operating officer, has assumed the additional responsibility of president, succeeding Robert W. Boykin, who will remain chairman and chief executive officer. Conti joined Boykin in 1998, after seven years as a principal and director at Coopers and Lybrand.

New Plan Excel Realty Trust Announces Management Shuffle... A series of changes were announced to support the company’s business plan to refocus on its retail franchise. Michael Carroll has been transitioned to the position of vice president, asset management, from vice president, leasing. He will report to Leonard Brumberg, who was recently named executive vice president, retail. Dean Bernstein, formerly the senior vice president, finance, has been appointed senior vice president, acquisitions/dispositions.

TrizecHahn Appoints Christopher Mackenzie as CEO... Mackenzie was most recently a partner of Clayton, Dubilier & Rice. Prior to that appointment two years ago, he served as the chief executive officer and president of GE Capital Europe. Peter Munk will continue to serve as chairman; Gregory Wilkins will remain president and chief operating officer.

Joseph Kornwasser Resigns From Kimco Realty... Kornwasser, the company’s senior executive president, will be leaving Kimco to pursue other interests as of June 2001. Kornwasser joined Kimco in 1998 as a result of Kimco’s merger with The Price REIT, where he was president and chief executive officer.

Sullivan To Leave TrizecHahn... Gregory W. Sullivan will resign as TrizecHahn’s executive vice president and chief financial officer at the end of January 2001. Sullivan joined the company in 1994. Sullivan has been commuting from Boston to the Toronto headquarters since August 1999 and intends to pursue other interests in the Boston area. The company has begun a search for Sullivan’s successor.

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