Affiliate of world’s biggest adviser hires Goldman Sachs for strategic review following losses from non-performing debt
A CB Richard Ellis-managed company that issues and invests in US commercial property loans is taking ‘aggressive actions’ to improve its financial position after being hit by the credit crunch.
New York-listed REIT CBRE Realty Finance has lost three-quarters of its value since its initial public offering in October 2006. It has hired Goldman Sachs to work with it ‘to identify and evaluate a wide range of strategic and operational initiatives to enhance shareholder value’ after last week posting a 2007 net loss of $70.8m (£35m).
‘I do not expect an uptick in the credit and capital markets in 2008,’ said president and chief executive officer Ken Witkin. ‘This is a severe market disruption that we are facing and I don’t see things returning to normal for some time.’
Shares in the company, which is 4.5% owned by CBRE and managed by a subsidiary of CBRE’s property debt-providing subsidiary, CBRE Melody, plunged 16% to a low of $3.02 on Monday in the wake of JP Morgan Chase’s emergency takeover of Bear Stearns.
CBRE Realty suffered along with other US commercial and residential mortgage REITs, such as Deerfield Capital Corp and Newcastle Investment Corp, as capital for lending disappeared.
However, on Tuesday, CBRE Realty’s shares bounced back in early trading by 29% as equity markets rallied on Wall Street after better-than-expected results from US investment banks Goldman Sachs and Lehman Brothers.
A spokesman for the wider CB Richard Ellis group said: ‘As a 4.5% shareholder, there is measured concern and an awareness within CB Richard Ellis over this situation, but this is an affiliate, with its own balance sheet.
‘Although we have a management involvement through an independent subsidiary, this is a quite separate vehicle, and Wall Street understands this.’
CBRE Realty’s 2007 financial results were hit by a writedown of nearly one quarter of the $82.8m (£41m) it has lent to Harry Macklowe, the New York-based developer. It said it had made two loans to Macklowe, both of which are considered ‘non-performing’, bringing its total non-performing loans to $94.8m (£47m), or 4.6% of its total assets.
At the end of 2007 the company’s investment portfolio was valued at $1.66bn (£821m), of which one half was whole loans and the other was mainly investments in junior debt called B notes, mezzanine loans and commercial mortgage-backed securities.
‘We continue to take the necessary steps to strengthen our financial condition and ensure [that we have] the required liquidity to manage and grow our portfolio,’ said Witkin, who only joined the company last September.
Two weeks ago one of the company’s larger shareholders, Arbor Realty Trust, which holds a 9.5% stake, sent a letter to Witkin requesting information on the sale of certain investments, including loans made to Macklowe.
Arbor said it believed CBRE Realty was potentially selling certain loans at a discount.
It is also asking for seven of its candidates to join the CBRE Realty board.