Stonewater Chasing Down Deals With Rollover Risk
Real Estate Finance & Investment, December 7, 2003
Stonewater Partners has formed a private investment fund to pursue value-add
opportunities across the United States and hopes to buy approximately $125
million of properties with short- to mid-term leasing risk in the next year.
Stonewater, which maintains offices in Los Angeles and New York, is working with
an undisclosed private investment company and has raised more than $5 million in
cash via a commingled fund catering to wealthy individuals, said Jeff Toporek,
partner. He declined to disclose details about the fund, including its name.
Stonewater plans on targeting investments in both single assets and portfolios
ranging from $5 million to $150 million, Toporek said. The company believes
there are attractive investment opportunities for investors who are willing to
stomach some short-term leasing risk in office and industrial buildings.
Launched earlier this year, the company has been targeting primarily
single-tenant buildings with strong tenants with leases that will expire in
three to five years.
With the exception of local investors and those seeking replacement assets for
1031 exchanges, Stonewater believes that there are few buyers for such
properties, making the potential for deals plentiful. "At this point there are
just no natural buyers for strong assets with A-credit tenants and short-term
leasing risk," he said. "Short-term rollover is not something most [investors]
want to deal with." Recently, Stonewater made its first purchase--a
four-building, 105,400-square-foot portfolio of Class A properties in Champaign,
Ill. for $13.5 million. The property is 100% leased to medical billing company
Amdocs, with leases expiring in 2011 and 2012. Toporek noted that the
acquisition typified the type of deal the company is looking for.
Typically, Stonewater seeks internal rates of return in the mid-teens and uses
debt of no more than 75%. David Stade, partner, located in Los Angeles, is
expected to handle deals on the West Coast. Toporek will focus on the East
Coast. Target markets will include primary markets such as New York and Los
Angeles, secondary markets Charlotte, Miami and St. Louis and tertiary markets
such as Champaign. Former Eastdil Realty executives, the duo decided to launch
their own company because they had a strong desire to be on the principal side
of the business.
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