Research Park Place finds financial footing
Aug 16, 2009
http://www.bizjournals.com/austin/stories/2009/08/17/story5.html
A private equity fund has recapitalized a Class A office park in Northwest Austin and become the majority equity owner as it seeks to demonstrate financial soundness to would-be tenants.
The move by Los Angeles-based JRK Birchmont Advisors LLC, which also restructured the debt on the property known as Research Park Place, is becoming more frequent in today’s market, real estate experts said.
Research Park Place, at 12515 Research Boulevard, spans 271,882 square feet with two buildings and is about 17 percent occupied. It was built in 2007 by Trammell Crow Co., and JRK Birchmont became a minority equity partner in the property when the building was completed in June of that year.
JRK Birchmont funded its investment through its Birchmont Capital Partners I LP Fund, a $203 million private equity fund established in 2007. The project’s lender is New York-based NorthStar Realty Finance Corp. [NYSE: NRF].
“Equity restructuring has always occurred, but changing market conditions create varying reasons that lead to new equity structures,” said Scott Herbold, part of the investment team with Todd Mills at CB Richard Ellis. “Restructuring debt and equity is more frequent now since lenders are only offering lower leveraged loans and higher interest rates.”
David Walker, president of JRK Birchmont, declined to name the former operating partner because it remains an investor in the project, but said his company typically acts as a financial partner. The project in this case was “not going in the direction we needed it to go in, so we decided to take over,” he said.
“Research Park Place is a prime property in a prime market,” Walker said. “We are confident in the property’s long-term viability.”
Chad Barrett, a principal with AQUILA Commercial LLC, which is handling marketing and leasing for the property, said JRK Birchmont’s move will signal to potential tenants that Research Park Place is financially solid, which hopefully will translate into improved occupancy.
“In today’s market, landlords are being scrutinized because of the times we’re in,” Barrett said.
He said a significant amount of supply recently added to the market combined with weak absorption has put downward pressure on rental rates over the past year, although they appear to be stabilizing.
“These market characteristics have put substantial financial stress on a number of assets in this market,” Barrett said. “I think [JRK Birchmont’s] financial restructure tells the marketplace we are completely open for business, and can execute a leasing program given today’s market conditions.”
Barrett said ongoing discussions between landlords and lenders will continue, as more projects face loans coming due or cannot meet stipulations in their loan provisions. While banks will try to work with owners to avoid foreclosure when possible, he said it’s hard to say how many landlords in troubled submarkets will do what JRK Birchmont has done.
The Northwest submarket, where Research Park Place is located, has vacancy rates of about 14 percent, according to Oxford Commercial’s second quarter 2009 research.
Rhonda Toming, a senior vice president with Oxford Commercial, said recapitalizing a property often depends on the lender’s motivation. But, she said, there is likely a chance more office building partnerships in the Austin area will seek recapitalization, primarily to get tenants.
“While Austin hasn’t been immune to the national economy’s challenges, it was one of the last markets to feel the effects and will be one of the first to recover, which boosts our confidence in Research Park Place,” said Brian Hebb, director at NorthStar.
