COMMERCIAL
Santa Ana-based Passco Real Estate Enterprises Inc. has some shopping money on its hands.
Passco recently sold a shopping center in Encino for $9 million to an undisclosed buyer, the company said in a statement.
Companies such as Passco pool investors to buy real estate as tenants in common. Such investors typically invest in a deal after having just sold another property.
Doing so helps them defer paying capital gains taxes under a section of the tax code dubbed “1031.”
Orange County is home to the largest tenant-in-common players, including Passco and Triple Net Properties LLC, also in Santa Ana. They’ve been doing a lot more buying than selling lately.
That’s what makes news of a sale interesting.
Brokers say there’s a liquidity issue with tenant-in-common deals. Companies that pool buyers often have a sell date in mind, telling investors to expect a cash out in three years or so.
But if you want to get out before that, it’s not so easy. You have to find someone to buy your share in the property, brokers said.
I recently talked about this topic during a lunch with some brokers at CB Richard Ellis Group Inc.
The brokers didn’t knock tenant-in-common deals. But they said that if the market turns,say if interest rates spike,then some buildings owned by tenant-in-common investors could lose value.
The possibility raises some hairy questions. When Passco bought the Puente Hills Mall in 2003 it pooled 32 investors into the deal.
That same year, Triple Net teamed 17 investors in a buy of an office building at Xerox Centre in Santa Ana.
Different investors could have different opinions on what to do if a building loses a key tenant or declines in value amid a downturn.
Passco, in a statement about the sale in Encino, said, “Upon the sale of this asset, investors can complete another 1031 exchange and reinvest their sales proceeds or elect to recognize their capital gains and pay the tax.”
The company sold Country Corner Shopping Center, a 106,389-square-foot center. Dixie Walker and Charley Simpson of Grubb & Ellis Co.’s Newport Beach office represented Passco.
Tenant Trouble?
Signs are mounting that subprime lenders are feeling the squeeze from investors and competitors.
That should be of interest to anyone who follows the office market, since subprime lenders, who make loans to people with imperfect credit, have accounted for some of the biggest office leases in recent years.
While traditional lenders have cooled somewhat, the companies going after riskier loans still are growing and have started driving office construction.
The latest sign of strain came in the first-quarter results from Irvine-based ECC Capital Corp., which goes by Encore Credit. The subprime lender posted a first-quarter loss before taxes of $9 million, versus a profit of $11.1 million a year earlier.
Revenue fell 28% to $22.7 million.
Perhaps most of concern to subprime lenders is a squeeze on what subprime lenders take in as interest on mortgages and what they pay out to holders of their loans packaged as bonds.
During the first quarter, “loan prices offered in the secondary market declined as a result of increasing short-term interest rates and ECC Capital generally obtained lower prices on the type of loans it sold into the secondary market,” the company said in a statement.
Translation: Investors are paying less for bonds backed by mortgages.
On the other end, Orange-based Ameriquest Capital Corp. and others are accepting lower profits on loans to keep or gain market share, sources said.
ECC went public in February, raising $400 million.
RESIDENTIAL
Seal Beach-based Olson Co. broke ground last week on 120 condominiums next to the train station in downtown Fullerton.
The $50 million project is dubbed SOCO Walk. The name is shorthand for south of Commonwealth Avenue. Olson scratched an earlier name of Fullerton Transit Village.
Olson is among a handful of developers seeking to build condos near transportation hubs, especially rail lines. The goal: get some people to use public transportation instead of their cars, at least some of the time.
Cities love the idea. Amid a hot-housing market and congested freeways, developers do too.
Olson unveiled some nice drawings of its planned townhomes, lofts and condo-office combos on 5.5 acres.
Prices haven’t been set by Olson yet.
Commercial Capital Clarification
Irvine-based Commercial Capital Bancorp plans to sell about $600 million worth of home loans previously held for investment and focus more on apartment and commercial real estate loans, according to its first-quarter release.
Last summer, Commercial Capital picked up a $900 million-plus loan portfolio with its buy of Hawthorne Financial Corp. Since then, Commercial Capital has made and held some home loans.
The thrift now plans to originate and sell home loans. In a prior column, I wrote Commercial Capital planned to exit the home-loan business entirely.
What caught my eye in Commercial Capital’s first quarter release was a rare bit of dramatic commentary from its chief executive, Stephen Gordon. He called single family lending “a lower yielding, margin depressing, overly competitive and commoditized, lower return on equity way of doing business.”
