Real Estate Forum - November 2008

described themselves as commercial lenders said they had no plans to lend in 2009. Only 23.6% said they would make both construction and permanent loans next year; 19.3% prefer issuing only permanent loans; and a mere 3.6% say they would do construction debt. As for when capital will begin to flow again, 65.2% predict an easing up sometime in 2009.

Expect a static occupier market in ’09. When corporate users were asked to project their space needs next year, 67% said they expect to maintain the same amount of footage. Only 10.5% plan to expand, while 22.5% envision a reduction in their space.

Fidelity National Buys
LandAmerica For $128M

The shrinking world of title insurance firms got even smaller this month when Fidelity National Financial Inc. of Jacksonville, FL acquired rival LandAmerica Financial Group Inc. Pending shareholder, antitrust and regulatory approval, the stock transaction is worth an estimated $128 million, according to various reports.

LandAmerica has been under significant financial pressure in recent quarters. In fact, the same week the merger was announced, the Richmond, VA-based firm postponed the release of its third-quarter earnings report and canceled its investor call. “The unprecedented credit freeze and depressed real estate market have negatively impacted our business to the point that it has become increasingly difficult for LandAmerica to remain an

d index

ALIS, Cover III

Cap Mark Finance, 35

Chicago Title, 11

CIBC World Markets, Cover IV Help USA, 55

IBS, 31

Intuit Real Estate Solutions, 19 Jones Lang LaSalle, 9

Marcus & Millichap, 5

Massey Knakal, 53

NAI Global, 7

ONCOR International, 15 Opus, 23

Reznick Group, 37 Schonbraun McCann Group, 13 Verizon SmartPark, 1

Yardi Systems, 3

This advertising index is provided as an additional service. While every attempt has been made to make this index as complete as possible, the accuracy of all listings cannot be guaranteed.

independent public company,” said LandAmerica’s Theodore L. Chandler Jr., in a statement announcing the merger. The chairman and CEO will join the Fidelity board of directors as vice chairman. “We believe this combination is in the best interest of our shareholders, customers and employees.”

Stockholders of LandAmerica will receive 0.993 shares of Fidelity National common stock for each LandAmerica share they hold. Fidelity National does not expect to incur any debt as a result of the merger, and anticipates its current debt-to-total capitalization ratio to remain at around 30%.

The deal has been structured to reduce the combined debt of the companies by some $250 million. Essentially, Fidelity National’s title insurance subsidiaries will provide liquidity equal to the book value of Commonwealth Land Title Insurance Co. and Lawyers Title Insurance Corp., LandAmerica’s two primary title insurance subsidiaries, prior to the merger. LandAmerica will use the proceeds to pay back outstanding indebtedness under its revolving credit facility and private placement senior notes, as well as any existing Fidelity National debt.

As part of the agreement, Fidelity National subsidiary Chicago Title Insurance Co. will provide a $30-million standby secured credit facility. Bearing an interest rate of Libor plus 400 basis points, the funds will potentially serve as additional liquidity for LandAmerica.

The transaction is expected to close by the end of the first quarter, said Fidelity National chairman William P. Foley II in a conference call announcing the deal. “We’re going to take the best of both companies and result in a much stronger organization,” he said.

While he conceded that the deal took place relatively quickly, Foley stressed that the companies did not jump into the merger. The firms had been in talks on and off for about a decade, he explained. “It’s tough economic times in the title business, and LandAmerica has been under greater financial stress than Fidelity National,” he stated, adding that the firm was under distress, but it wasn’t necessarily failing.

The combined company has a pro forma market share of 46.3%, based on year-end 2007 numbers. As of the third quarter, the combined investment portfolio and reserve for claim losses were $$5.5 billion and $2.6 billion, respectively, and its year-to-date revenue was about $5.3 billion. According to preliminary estimates, the firm will realize at least $150 million in savings as a result of the deal—$50 million

of which will be realized at closing— thanks to operational cost synergies such as office consolidations and reducing overhead and redundancies.

Tough Road Lies Ahead
For Commercial Property

If the past nine months—or even previous 60 days—have struck you as difficult, brace yourself: the next year is going to be even worse, according to “Emerging Trends in Real Estate 2009,” a report released by the Urban Land Institute and PricewaterhouseCoopers LLP. The study is based upon interviews with 600 real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.

This year’s report minces few words about the state of the industry: it can be best compared to the wrenching 1991-92 cycle and projects losses of 15% to 20% in real estate values from the mid-2007 peak. “It is still the early days of this,” says ULI senior resident fellow for real estate finance Stephen Blank. “Transactions will become constrained because leverage will not be available, and real estate needs leverage to operate.” The silver lining, he says—a point the report elaborates on—is the handful of investment opportunities that will arise from the chaos. “It is an unfortunate yin-yang forecast: somebody has to suffer for someone else to benefit,” he notes.

Opportunities for the cash-rich and increasingly, overseas buyers that can leverage a weak dollar, include discounted loans; recapitalization finance for distressed borrowers such as construction/ bridge loans, mezzanine positions and equity stakes in properties; publicly held REITs, which are expected to lead the market’s recovery; multifamily investments and residential building parcels, but be prepared to hold them; distressed condos near transit; and properties in global gateway cities. In terms of investment, Seattle and San Francisco take the top two spots of such cities, beating out New York City, which has ranked at the top. Washington, DC came in third place.

Another opportunity for developers and borrowers, as well as owners of single-family homes, lies in lenders’ increasing need for liquidity, Blank relates. Borrowers with good credit and assets that have retained their value may be able to purchase their mortgage from their lender at a discount if the lender has a need to move the asset off of its balance sheet.—Erika Morphy, GlobeSt.com ◆