Carr Properties nears deal for $300 million Israeli investment, plans to go public

Jeffrey MacMillan/JEFFREY MACMILLAN - Developer Oliver T. Carr III.

One of the biggest names in Washington real estate is gearing up to invest hundreds of millions of dollars in local office buildings and development projects even as other firms remain wary of a slowdown in leasing and government cutbacks.

Carr Properties, the latest iteration of a family empire begun 51 years ago by magnate Oliver T. Carr Jr., is in the final stages of landing a $300 million investment from Alony Hetz Properties and Investments, one of Israel’s largest real estate investment companies.

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With Alony on board, Carr plans to grow its real estate holdings from roughly $800 million today to $1.5 billion in coming years and then possibly go public, allowing it to attract more cash through an initial public offering.

Oliver T. Carr III, president and chief executive of Carr Properties, said the investment would allow him and his team to build the region’s “preeminent” publicly traded office company that he said would have an advantage over both private local firms and national real estate investment trusts that invest in Washington.

“There are great companies that are active in the office business here and there are some large national REITs like Boston Properties and like a Vornado, but there is not a pure-play public office company investing and developing in this region,” he said.

Making Carr the top name in Washington office buildings would be a return to the past. The empire began with the Oliver Carr Co. in 1962, which morphed into CarrAmerica in 1993. The company ultimately amassed a portfolio of 26.3 million square feet in 12 markets before cashing in with a $5.6 billion blockbuster sale to private equity giant Blackstone Group in 2006. Made at the peak of the real estate market, it’s hard to imagine the portfolio fetching a higher price.

Oliver Carr III, the youngest of six siblings, has kept the family in the real estate business with a string of firms. He started Carr Capital Corp. shortly out of graduate school and then formed a public REIT, Columbia Equity Trust, in 2005. Two years later, JPMorgan put up about $502 million to take Columbia Equity Trust private, creating today’s Carr Properties.

Carr’s older brother, Robert, is the company’s managing director of development, and together they have inked deals to build an office building next to the Corcoran Gallery of Art at 1700 New York Ave. NW and to build a speculative office building in Bethesda at 4500 East West Hwy. Carr Properties is also the owner of the building at 15 and L streets NW that is on land owned by the Washington Post Co. and is a key component of the Post’s planned sale of its headquarters.

In all, Carr Properties disclosed stakes in 20 buildings and four development sites worth a total of nearly $800 million and said that it made $33.78 million in net profits in 2012. Carr said its ratio of debt to assets was 54 percent at the end of 2012.

‘We believe in the regional economy’

Once the deal closes, Alony and longtime Carr investor JPMorgan Chase, through its special situation property fund, would each own about 45 percent of the company. The remaining 10 percent would be owned by the Carr family and friends, such as the family of A. James Clark, chairman and chief executive of Bethesda-based construction giant Clark Enterprises.

Alony Hetz said in December that it has signed a term sheet with Carr and disclosed in a May 5 letter to investors that the companies had signed multiple binding agreements. Nathan Hetz, chief executive of Alony Hetz, would become chairman of the board of the new company.

“Alony Hetz is going to allow us to broaden our strategy,” Carr said. “So we’re going to be able to invest in stable, income-producing properties as well as continue to invest in value-add opportunities as we have been. So that’s investing in development, that’s investing in turnaround office buildings.”

He said the region’s flat office leasing and fears about sequestration were likely to be short-term concerns. “We’re not trying to time the market. We believe in the regional economy and the regional office market for the long term, and we think that there is an opportunity here to build a best-in-class office platform that’s only invested here in this market,” he said.

Alony’s arrangement with Carr follows other major investments in downtown Washington real estate, as institutional investors globally look for investments that can provide a greater return during an extended period of low interest rates. Qatari investors stepped in to finance CityCenterDC and Abu Dhabi money makes up the majority stake in the Marriott Marquis Convention Center Hotel.

Like Carr, Alony is looking at Washington long-term. Established in 1989, it went public in 1993, and after the global recession invested heavily in Israel, Switzerland and Canada. Despite having only about 10 employees, it now controls stakes in some 400 commercial properties worldwide. Looking for a stable, gateway office market in the United States, it focused on Washington and met more than 30 local development types before engaging Carr in August, according to Moti Barzilay, vice president of business development.

“We are long runners and always look at least for a decade ahead,” Barzilay said in an e-mail.

Brad Case, senior vice president at the National Association of Real Estate Investment Trusts, said that with the stock market on the rebound and properties coming back onto the market, it made sense for real estate firms to try to attract public money and move aggressively. Eight new REITs were formed nationwide in 2011 and 2012 respectively, but six were already formed in the first quarter this year.

The concern for private firms, he said, would be competition with more established public firms, even if they do not have the same niche. “You have to get people to agree to buy your stock … it’s not that easy, because to do that you’re going up against a number of publicly traded companies, so why would investors buy stock into your new, unproven company?”

Jonathan Morris, a former Boston Properties vice president and current adjunct real estate professor at Georgetown University, said Carr’s plan to go public was “brilliant” given the low interest rates, growing economy and the fact that investors have taken into effect the slimming of office footprints that law firms and other employers are putting into place. “It’s basically re-capitalizing their portfolio, recognizing the value that they’ve created,” he said.

 
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