The Bay Area Real Estate Journal
RREEF Faces Investors Oct. 1
Submitted September 28, 2009
Executives with San Francisco money manager RREEF Funds LLC are likely to receive a huge earful Oct. 1at a stockholders’ meeting in Chicago.
Worried investors who have watched their money dwindle as the value of a troubled real estate investment pool has plunged will be seeking answers on a variety of topics including the fund’s recapitalization and management.
Investors holding nearly a quarter of the outstanding shares in RREEF America REIT III have lined up to exit the commingled fund, seeking to lock in whatever value they still have, according to figures current at the end of June. But RREEF officials thus far have declined to honor the requests, citing a need to retain capital to keep the fund afloat.
The fund in question owns properties across the United States but its troubles have gained regional notice as several high-profile assets are located in the Bay Area. In particular, the fund owns the Sunnyvale Town Center, a $750 million redevelopment of a former fortress mall in downtown Sunnyvale. Construction at the property stopped earlier this year, and the fund has defaulted on its debt. Less than half of the project, which includes offices, housing, retail space, a theater and a hotel, is complete.
RREEF American REIT III also owns more than five million square feet of Silicon Valley office and research and development space that it acquired for more than $1.1 billion in 2006 from long-time valley landlords Richard “Dick” Peery and John Arrillaga. According to a Pennsylvania company that tracks the health of commercial mortgage-backed securities, the portfolio’s occupancy rate, around 70 percent, has moved up less than 10 percentage points since the acquisition. The portfolio secures $700 million in debt.
San Francisco real investors and money managers Stockbridge Real Estate Funds and Divco West Real Estate Investments have submitted a plan to recapitalize the fund and take over its management. A third, unnamed company is also part of the offer. But so far, naught seems to have come of the offer: There has been no response from RREEF or its advisor on RREEF America III, Lazard Ltd.
Divco, RREEF and Stockbridge have business ties. In 2003, Divco and RREEF came together in a joint venture to buy the 770,000 square foot Market Center office complex in downtown San Francisco for $79.5 million. Divco West sold its portion of the property to RREEF in 2006. The America REIT III fund owns the Market Center. In addition, at least one former Divco executive, Stephen Pilch, now works at Stockbridge. RREEF, Stockbridge and Divco declined comment for this story.
Attendees at the shareholder meeting are expected to include some investors themselves and real estate consultants that have clients in the fund. The consultants include companies like The Townsend Group and Courtland Partners. Other representatives will access the meeting via conference call.
The agenda for the meeting will involve several subjects. One is to review the fund’s most recent quarterly performance. There also will be a question-and-answer session with some of the shareholders in the fund. An update on the recapitalization of the fund also will be discussed.
Investors in the fund have watched with dismay as the value of their shares has plummeted by some 70 percent. The Teacher Retirement System of Texas agreed in October 2007 to invest $150 million into RREEF III, and RREEF took down all of the capital in January of 2008. At the end of July, Texas Teachers valued its investment at $42 million. Several high net-worth individuals who invested $1 million in the fund now put the value of their holdings at around $300,000.
During the second quarter alone, the America III portfolio was written down by $315 million, or 11.6 percent, from the previous carrying value.
At the end of the second quarter, the fund had a total value of $2.4 billion. There are a total of 118 institutional investors in the fund and more than 270 in total. The fund backs roughly $1 billion in debt, much of which matures this year and next.
Real Time Real Estate
