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Barker Pacific Targets $300M for Troubled Assets
LOS ANGELES - Two new principals have joined Barker Pacific Group as part of the LA-based investment and development firm's plan to raise $300 million of new equity to acquire distressed and value-added commercial real estate notes and properties. Michael Barker, managing director of BPG, tells GlobeSt.com that new principals Dana Ostenson and John Ghiselli will help Barker Pacific to capitalize on existing and anticipated opportunities arising in the market as a result of credit market turmoil and the economic downturn.
Ostenson, who was formerly managing director and group head for Johnson Capital Investment Banking, has joined Barker Pacific to raise the $300 million in new capital to augment BPG's already strong capital relationships. Ghiselli, the founder of Wilshire Property Co. and a former Lincoln Property Co. exec, joins Barker Pacific as vice president of acquisitions and EVP of Sterling Management Advisors, a strategic asset management services company that is a Barker Pacific affiliate.
Barker tells GlobeSt.com that his company is pretty well along in its plan to raise the $300 million of new equity, mainly through Ostenson's relationships with capital sources. He says the equity is committed capital on a programmatic basis, meaning that Barker Pacific has discretion to invest the funds within certain parameters established with its investors.
Ostenson's clients have included a broad range of entities, from public companies to entrepreneurial developers and investors. Before Johnson Capital, he was a senior vice president at Pivotal Group and Solis Property Co., a distressed real estate investment company.
Ghiselli, who has 20 years of transactional experience, formed Wilshire Property Co. to acquire office, industrial and retail properties in California and Arizona. Before that, as an EVP with Lincoln Property, he acquired office, retail and industrial properties throughout Southern California.
Barker's 25-year-old company has traditionally invested in commercial real estate in the West and Southwest, including Los Angeles, San Francisco, San Diego and Phoenix--primarily in office buildings but with significant holdings in self-storage. It will continue to focus primarily on office properties in those areas as it looks for opportunities in distressed assets. "We see a lot of disarray in the marketplace in properties that are over-leveraged and under water," Barker says.
The company is projecting that it will deploy the $300 million over at least two years and possibly into a third year. It is expecting to hold assets for three to five years in most cases. "We don't see the market turning around strongly in a positive direction any time soon," Barker says.
The company is targeting leverage ratios in the range of 50% and is looking for both performing and nonperforming properties and notes. It has already acquired a note that is performing but is going to be coming due, and it is considering another that is performing that it would acquire at a discount.
Although Barker expects that commercial real estate foreclosures will increase, he anticipates that most of the opportunities to acquire distressed assets will arise from the financing problems that borrowers will face when their loans mature. Borrowers who financed properties two or three years ago may find that those assets have declined in value, so they won't be able to refinance them at the same loan-to-value ratios and may well face huge capital requirements, he points out.
Barker says that other opportunities for value-add acquisitions may arise in a variety of situations, such as when a lease rolls over and a major tenant vacates a building. Value-add is a loosely defined term, he observes, but most people think of the phrase in terms of properties that require some work to be done, such as finding tenants for empty space or investing in capital improvements.
Such situations will create opportunities for firms like Barker that have ready capital. The firm is in a solid financial position in part because it hasn't acquired any properties in the past two years. It disposed of some properties in the years 2005 through 2007.
Investing in distressed properties will return Barker to its experiences of the early 1990s, when it bought distressed assets in that downturn. Barker notes that, however similar they might be, "All cycles are different." This downturn is more capital-driven, he points out, whereas one of the biggest factors in the early 90s downturn was overbuilding.
"We are in a period where there is going to be a readjustment in values," Barker says. The rising vacancies in this cycle will be created not by overbuilding but by the downsizing of tenants who will vacate office space. The eventual recovery will be a matter of filling that empty space with the new companies that typically start up in the next cycle, Barker says.
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