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Firms with cash on hand on prowl for deals
While the turbulence roiling the real estate and debt markets is painful, for some investors there's gold in that upheaval.
"Capital-market dislocations can present opportunities to make money," said Peter Palandjian, chief executive of Intercontinental Real Estate Corp. in Boston.
Like other property buyers using institutional capital, including resources from pension funds and insurance companies, Intercontinental has cash on hand. Routinely, the entities whose money Intercontinental invests have rules that limit the amount of debt they can assume to buy real estate. That's in contrast with others that in recent years have used 95 percent debt or more to acquire property.
"We don't use more than 50 percent debt on any purchase, since we manage money for tax-exempt organizations," Palandjian said.
As a result, it is less troubled by the rising borrowing costs and tighter underwriting criteria that have hobbled others.
By the end of the quarter, the company will be managing $2 billion in assets, including $300 million raised from 10 Chicago-area public employee or union retirement funds.
Lately, Intercontinental has been hunting for small, $25 million to $40 million retail properties in cities such as Chicago, Boston, Charlotte, and Austin, Texas.
This month, Palandjian said, his firm purchased the Parkway Shopping Center in Bloomington, Ind., for $24 million. In June it bought Louis Joliet Pointe in Joliet for $32.6 million, and a few months before that it purchased Park Place in Palatine for $24 million.
Houston-based Hines Interests LP is also in acquisition mode. This month it closed an $828 million fund with assets raised from pension funds, insurance companies and financial firms based in the U.S., Europe and Japan.
Over the next few years, it plans to buy $2.8 billion in property, mostly U.S. office buildings in the top 20 markets.
Despite the recent tightening in debt markets and weakness in housing, "Office fundamentals -- leasing, occupancy and rental rates -- are good," said fund manager David Congdon, a Hines senior vice president.
"We like downtown Chicago, although it's not knocking the cover off the ball like New York or Houston," he said. "We're looking for well-located buildings with fixable problems."
Even in the best office markets, building prices are coming down as turmoil overtakes capital markets.
"Prices are discounted from ordinary levels," Congdon said. Meanwhile, in the race for assets, "there will be less competition from buyers who use a lot of leverage."
GROUNDBREAKING NEWS: Golub & Company LLC on Monday broke ground on the approximately $150 million Streeter Place apartment building at 355 E. Ohio St. It is scheduled to open in June 2009.
The luxury 480-unit building is a joint venture between Chicago-based Golub, New York-based BlackRock, which has $1.23 trillion under management, and Boston-based AEW Capital Management LP, with financing from Union Labor Life Insurance Co.
MALL PLANS: Volo in Lake County is scheduled to get a new $100 million open-air regional mall. The developers -- Orput Cos., Mid-America Asset Management and Archon Group -- recently closed on the 90-acre site, said a spokeswoman.