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New investment saves the day on Tishman portfolio

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By Jonathan O'Connell
Monday, June 14, 2010

Things were looking dour when Rob Speyer flew to Washington for the Tishman Speyer holiday party last December.

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For a year, Tishman's team in D.C. had been working on refinancing a portfolio of 28 Washington area office buildings that the company had purchased near the peak of the market and later defaulted on. Not long before, news had spread that Brookfield Properties, another major Washington office owner, had purchased some of the debt.

As Speyer headed for the downtown gastro pub Againn, the wolf was circling the henhouse. But the party became a galvanizer.

"There was a cocktail hour, and we sat down for a dinner with a table full of guys and we talked baseball," Speyer said in a phone interview. "You know, one guy was a Cardinals fan, I'm a Yankee fan. We're sort of talking baseball. It was a just a -- it was a conversation like what was happening at a thousand other holiday parties that night around the country."

Speyer, Tishman's president and co-chief executive, never lost faith in the properties -- they are 88 percent leased -- or the Washington market, which he considers one of the strongest in the world.

But the party reminded him that his staff had stuck it out and wanted to see the deal through. None of them had left during the market collapse or the impending threat of foreclosure.

"The spirit of the people at that party was just incredible," Speyer said. "It moved me. It moved me because they would have plenty of excuses for feeling down and dispirited given what we were going through, but instead they were genuinely excited to be together, genuinely believed that we would get through this, and stuck together."

Six months of negotiations later, on June 10, Tishman Speyer announced that it and its investors would add to their initial $2.8 billion bet, adding $700 million of equity to the deal five days before the date for which Barclays had reportedly scheduled an auction for the debt. The new investment retires $600 million of the debt.

All of the new capital came from the pool of about a half dozen investors in the initial purchase. Of the $700 million equity investment, according to a source familiar with the deal, $100 million came from Tishman. Tishman Speyer declined to name its investors other than SITQ, a real estate fund and subsidiary of Caisse de depot et placement du Quebec. SITQ did not return a call for comment. The source spoke on the condition of anonymity because details of the deal have not been made public.

The 28 properties comprise 6.3 million square feet in D.C., Alexandria, Arlington, Bethesda, Reston and Tysons Corner and house high-end tenants. The group includes prominent downtown buildings such as the 225,000-square-foot Commercial National Bank Building on New York Avenue near the White House.

Now that ownership is certain, the company can begin leasing and planning building upgrades in earnest. "We think this is the best collection of office buildings available in the market, and so if you want to own real estate in Washington, D.C., this is about as good an opportunity as it gets," Speyer said.

Still, Speyer said the burden of proof was on the deal "to demonstrate why it merited a fresh investment."

"We looked at this as a new deal, because every time you put new capital into a transaction, even if it is a legacy transaction, it's new capital that has to be judged against what you might otherwise do with it," he said.


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