Bloomberg News

Walton Street Seeks to Unload $2.8 Billion CalWest Purchase

December 13, 2011

(Updates with comment from analyst and details of loan starting in fourth paragraph.)

Dec. 1 (Bloomberg) -- Walton Street Capital LLC hired CBRE Group Inc. to sell 95 industrial properties that it acquired for about $2.8 billion in 2007, when commercial real estate prices peaked, as a debt payment on the buildings comes due in June.

The properties are 82 percent leased, according to a CBRE marketing document, a copy of which was obtained by Bloomberg News. Occupancy was 91 percent when Chicago-based Walton Street bought the buildings, known as the CalWest portfolio, Real Estate Alert reported at the time.

Property owners have had difficulty refinancing debt amid the decline in U.S. real estate values from their highs and upheaval in the commercial mortgage-backed securities market since July. Walton Street has a $2.45 billion loan repayment deadline in June. Blackstone Group LP, the world’s largest private-equity firm, has acquired almost $600 million of debt on the buildings, putting it in a position to take control if the borrower defaults.

“Walton Street would have to come up with a lot more money to hang onto this,” said Dan Fasulo, managing director at Real Capital Analytics Inc., a property-research firm in New York. “The problem is they bought this portfolio very much at the height of the market, and I’m not sure these assets are worth that anymore.”

Commercial real estate prices in the U.S. have fallen 42 percent from their peak in October 2007, according to an index compiled by Moody’s Investors Service.

California Properties

Walton Street paid about $120 per square foot for the CalWest properties, which total 23.4 million square feet (2.2 million square meters) and are mostly located in California. While it’s difficult to generalize, Fasulo estimates industrial assets are now valued at about $80 to $100 per square foot.

“They’re actually fortunate that most of the assets are in California, where there is significant demand,” Fasulo said. “They’re hoping someone will come along and see the value and help them work out of a difficult situation.”

Eric Mogentale, managing principal at Walton Street, didn’t respond to telephone and e-mail messages seeking comment. Christy Ingle, a spokeswoman for CBRE, declined to comment.

The portfolio is made up of single-building and multibuilding warehouses and business parks. There are 527 buildings in all and one land parcel, according to the CBRE document.

Port Cities

Many of the properties are located in or near port cities, including in Orange County, California; Los Angeles; Oakland, California; San Diego; Seattle; and Portland, Oregon.

Walton Street bought the assets from a joint venture of the California Public Employees’ Retirement System and Deutsche Bank AG’s RREEF unit. The acquisition was funded with the $2.45 billion loan from Lehman Brothers Holdings Inc., Barclays Capital Inc. and Goldman Sachs Group Inc. About $275 million of debt was packaged into bonds and sold to investors.

Some industrial property owners tried unsuccessfully to sell assets earlier this year, Fasulo said.

“After the market got hot earlier in the year, there were a handful of major industrial offerings that came to market and the buyers basically pushed back,” he said. “A lot of stuff fell apart.”

--With assistance from Dan Levy in San Francisco and Jonathan Keehner in New York. Editors: Kara Wetzel, Christine Maurus

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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