Offers rolling in on ProLogis space
As many as 80 offers have been made on pieces of the 33.23 million square feet of industrial space that real estate titan ProLogis is now marketing for sale nationwide.
But, the pricing “is all over the map,” according to the real estate investment trust’s chief investment officer.
Ted Antenucci made the comments during a Feb. 10 conference call with analysts.
Antenucci did not specify what assets have bidders. The assets are being marketed in 14 U.S. regional portfolios, including 1.73 million square feet in Florida.
The Florida portfolio carries an estimated market value of about $80 million, real estate experts say.
The assets cover many of the nation’s top industrial markets, including about 832,822 square feet in Orlando
“We don’t intend to sell all of the assets that we have offers on, but the demand has been significant,” Antenucci said of the whole U.S. portfolio. ProLogis (NYSE: PLD) has not put a price tag on the assets, but experts estimate their value at $1.43 billion.
“We expect to conclude a sale or some sales sometime in the end of the first quarter or early second quarter,” Antenucci said.
The amount these assets garner, in a market absent of credit and full of sidelined-capital waiting for fire sales, is considered a harbinger for how 2009 will unfold.
“Portfolios used to sell at a premium; now they sell at a discount,” said Charles Foschini, vice chairman of debt and equity finance for CB Richard Ellis in Miami.
Without financing, the pool of potential takers resembles a puddle.
Those that can buy will try to underwrite at a higher capitalization rate – a percentage used to value a property based on net operating income in relationship to its capital cost direct lender payday loans. This offsets risks in a deteriorating occupancy and rental market. The lower the capitalization rate, the higher an asset’s value. During the buying boom, well-leased industrial assets were regularly trading at cap rates of 7 percent or less.
Antenucci said the REIT expects the pricing to reflect “single-digit” capitalization rates.
Real estate experts say that may be optimistic.
“The fact is no one knows,” said real estate analyst Dan Fasulo, managing director of New York-based Real Capital Analytics. “There is no acquisition financing for something that large. There would be a huge discount. If they wanted to move this today, there is no way it is under a 10 percent cap rate.”
But, in the face of maturing debt both on its balance sheets and in its specialty funds, ProLogis, once an aggressive buyer, has to be a seller.
At the end of the fourth quarter, the Denver-based REIT held $11 billion in debt on its balance sheet, with $339 million maturing this year. In its various funds, it faces $1.4 billion in maturing debt this year.
During the morning conference call, analysts peppered ProLogis executives with questions on how they plan to meet debt obligations.
Much of ProLogis’ strategy centers on shutting off part of its development pipeline, restructuring, extending loans and credit facilities, and selling assets.
The company’s goal is to reduce its debt by $2 billion this year.
Filed under: economics by Wolf