01/14/2009

ING Fund Sells 3 Offices at Sharp Discount

An ING Clarion Partners fund has sold three underperforming office buildings for 45% less than it paid - reflecting how the market downturn is punishing sellers.

A CB Richard Ellis Investors fund acquired the portfolio for $198 million. CB Strategic Partners U.S. Value Fund 5 allocated about $71 million for the 418-square-foot building at 500 North Brand Boulevard in Glendale, Calif., about $66 million for the 248,000-sf Esperante at 222 Lakeview Avenue in West Palm Beach, Fla., and about $61 million for the 422,000-sf Metropolitan Center at One Meadowlands Plaza in East Rutherford, N.J.

ING's open-end Lion Properties Fund, which had acquired the properties in 2005 and 2006 for a total of $363.3 million, didn't return calls seeking comment on why it accepted such a hefty discount. But many open-end funds have been forced to raise cash to meet heavy redemption requests from their investors. The steep drop in value that ING saw is a bad omen for owners that have to sell or recapitalize noncore properties this year.

ING briefly shopped each of the three properties early last year - 500 North Brand via Eastdil Secured, Esperante via DTZ Rockwood and Metropolitan Center via Cushman & Wakefield.

ING had hoped to sell 500 North Brand and Esperante for slightly more than the purchase prices and Metropolitan Center for about the purchase price, even though occupancy levels for the buildings averaged only about 80%, below the level for surrounding properties. But as the sales market deteriorated and the buildings' occupancy levels dropped to about 75%, it became clear that investors were demanding significant discounts.

The CB fund had been tracking Esperante and Metropolitan Center for several months. It formerly owned Metropolitan Center, selling it to MetLife in 2002 for $77.5 million. CB and ING began talks in November, when ING also proposed selling 500 North Brand.

CB's core-plus vehicle completed the cash purchase Dec. 30. The buzz is that the fund may not line up mortgages for several months because of the credit crunch. The fund, which seeks about a 12% return, normally averages about 55% leverage. Los Angeles-based CB declined to comment on the transaction.

The CB fund plans to renovate each building, including the introduction of "green" measures and the construction of conference centers.

ING bought Metropolitan Center in 2005 from MetLife for $119.5 million, Esperante in 2005 for $104 million from a Rockwood Capital fund, and 500 North Brand in 2006 from GE Asset Management for $139.8 million.

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