cantly larger than what the company wanted
to do. “There are a only a handful of life
companies willing to have individual asset
exposure of over $100 million.”
As a result, he concurs, club deals are
becoming more prevalent. For instance,
Prudential participated in a loan with
Northwestern Mutual that totaled $375 mil-
lion on a suburban New York mall for a
Simon Property partnership.
Prudential is stretching in other ways as
well, although Durning says such deals are
hardly the norm for the company. “There
have been cases where we worked with institutions on hybrid loans where all the credit
and security were real estate related,” he
says. “So we would offer an unsecured portion of the loan until the company reaches
critical mass to secure the loan.” In such a
scenario, the company may have assets that
are unencumbered. They could either put
mortgages on those properties or get a corporate loan, he says. Prudential would structure the unsecured loan with covenants that
enable it to convert to a secured facility as
the company acquires more assets.
The Other Side of the Market
Such are the options available to institu-
tional capital that has access to equity. By
contrast, Durning admits, there is little trans-
action activity in normal flow deals in the
$10-million to $100-million range. “That is
starting to come back, but in general there
isn’t the same ready supply of equity to move
in and delever those assets as there is in the
higher tiers,” according to the executive.
Rush to Quality
A rush to quality deals is hardly unique to
this business cycle, but the economy has
greatly heightened this tendency. “Assets
that are in the core major markets and have
integrity of cash flow are going to attract
some very aggressive bidding,” says John
Pelusi, executive managing director in
HFF’s Pittsburgh office.
By contrast, assets in secondary or tertiary markets are finding it much harder to
secure capital. “A building that is only 80%
leased, located in Detroit with rollover tenants, for instance, is going to find it difficult
to get financing,” Pelusi says.
The glue holding together the deals
that do get done is equity, maintains Bill
Collins, senior managing director of
Cassidy Turley’s capital markets group in
Washington, DC. “Since the beginning of
year, we have done about 12 office sales,”
he says. Of those, 90% have been all-equity
transactions where someone came to the
settlement table and wrote a check for the
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