Newport Beach-based real estate investment bank Buchanan Street Partners might find itself doing more investing than banking next year.
It’s been about 14 months since Buchanan Street sold a majority stake of its business to Los Angeles-based TCW Group Inc., an investment manager that counts $130 billion in assets under management.
Until now, things at Buchanan Street have largely been business as usual, with the benefits of that deal to be seen more in 2009, particularly in Orange County, said Robert Brunswick, chief executive of Buchanan Street.
“We expect to be a very active investor in 2009,” Brunswick said.
TCW’s backing has allowed Buchanan Street,which has about $2.5 billion in real estate under management and continues to be locally run,to keep raising money amid the tough economic climate, in part through foreign investors, he said.
At the time of the TCW deal, Buchanan planned its next investment fund to come in at about $1 billion,double its largest one to date.
Deals next year will focus on distressed local properties, as well as the acquisition of distressed loans.
“We’ll be targeting Orange County in 2009 and 2010,” Brunswick said.
The company shied away from investing in OC during the past few years as land and property values spiked, he said.
“We couldn’t get comfortable with the cap rates,” and projected rents from local properties being offered for sale weren’t enough to validate the deals, he said.
Locally, Buchanan Street’s biggest deals in the past few years have been sales, not acquisitions. Along with Irvine-based development partner Birtcher Development and Investments Co., it sold Costa Mesa’s South Coast Home Furnishings Centre for more than $100 million in late 2007.
Buchanan Street buys and sells offices, industrial buildings, shopping centers and other real estate.
The company also lines up financing for developers, although that business is expected to remain tempered amid the nationwide slowdown in the commercial real estate market. In October, Buchanan Street said it planned to phase out its investment sales and brokerage offerings as part of a shift in focus as part of TCW.
Office and retail properties are the most likely sources of OC acquisitions in the near term.
OC’s office market,which currently counts a vacancy rate of about 16%, according to most brokerages,is likely to exceed 20% by mid-2009. That should provide more distressed acquisition opportunities, Brunswick said.
“I think it will be a tough 2009 and a tough 2010,” he said.
Retail property owners also face challenges, according to Timothy Ballard, the company’s chief investment officer.
A major retail landlord recently told Ballard that one of his anchor tenants had asked for an 18 month rent holiday on a well-performing store.
“The tenant’s threat was that they would let the store go dark and ruin traffic for the rest of the center if their demands were not met,” Ballard told the company’s customers this month.
Ballard predicts that overall commercial real estate values will decline by a minimum of 25% from peak to trough on quality real estate.
The downturn in the real estate market during the past year hasn’t caused TCW, part of Paris-based Soci & #233;t & #233; G & #233;n & #233;rale, to regret its investment in Buchanan Street, according to Brunswick.
TCW “has left us alone (from an operational standpoint),” he said. “They’ve given an entrepreneurial firm good infrastructure support.”
