Homes aren't the only hot real estate in the Washington area.
A number of local real estate companies with Wall Street financing have gone public lately or are planning public stock offerings this summer. The latest is a spinout of the family-run Bresler & Reiner Inc. office properties into a new public company.
The company, Midlantic Office Trust Inc., is a new wrinkle in the 50-year partnership between the Bresler and Reiner families. Scion Sidney M. Bresler, now chief executive of Rockville-based Bresler & Reiner, will become chief executive of Midlantic once it completes its IPO. Bresler & Reiner hasn't named his replacement.
Ties between the two companies and families, however, will remain close. Bresler & Reiner will buy $15 million of Midlantic's stock in the $260 million stock offering. Bresler will remain on B&R's board. His father, Charles S. Bresler, who co-founded B&R in 1970 with Burton J. Reiner, will be chairman of Midlantic.
In fact, the new company is more a splintering of assets than anything else. Bresler & Reiner has always been a diversified real estate company, owning and developing office, residential and hotel properties. It began as a Washington-focused operation but has expanded its investments to Philadelphia, Baltimore, the Eastern Shore of Maryland and Wilmington, Del., as well as Orlando and Tampa in Florida. B&R is a major investor in the Waterfront Mall mixed-use development in Southwest Washington, a property the company has controlled since 1964.
In 2002, Sidney Bresler, 50, succeeded his father as chief executive. Since then, B&R has gone on a buying binge, snapping up interests in more than a dozen properties, most of them office developments.
Midlantic, once it raises money in the IPO, will buy a block of those properties from B&R.
Sidney Bresler did not return phone calls seeking comment. Company executives typically do not speak to the press while their firm is in registration.
The deal, according to Securities and Exchange Commission documents, will work like this:
Sometime this year, Midlantic, which was formed in March, will sell about $260 million of stock in an offering underwritten by Friedman, Billings, Ramsey Group Inc., the Arlington investment bank that has become one of the leading underwriters of real estate companies. Unlike Bresler & Reiner, Midlantic will be a real estate investment trust, meaning that its operating income won't be taxed as long as it passes most of it on to shareholders in the form of dividends.
Midlantic will then pay $248 million for nine properties consisting of 18 office buildings currently owned by B&R. The properties are in suburban Washington, the Philadelphia suburbs and Wilmington.
The final terms of the Midlantic stock offering, including the per-share price and how much of the company will be controlled by insiders, have not been disclosed yet.
Gustavo Sarago, an analyst who follows real estate public companies at FBR, would not comment on Midlantic because his firm is underwriting the deal. But he said he expects more such office building owners to tap the stock market in the coming year.
"There's access to capital right now that we haven't had since the mid- to late-1990s," he said. "With REITs there's opportunity for investors to achieve higher returns than they are seeing in the rest of the market, given their desire for current income as well as potential growth."
The "current income" comes in the form of dividends, which all profitable REITs pay to shareholders every quarter, and the growth comes from the underlying strength of the economy, which is expected to continue to generate steadily increasing demand for office space, Sarago said.
A second example: Columbia Equity Trust Inc., a D.C. company created by Oliver T. Carr III, another scion of a well-known Washington real estate clan. Columbia, which first registered for an IPO in February, sold 12 million shares last week for $15 a share, raising $180 million. Columbia (ticker symbol: COE) closed Friday at $15.33, up just 2.2 percent from the offering price.
The company consists of 13 Washington area office properties from the Carr family private interests, for which Columbia will pay $122 million in cash and assume about $97 million in debt. In SEC filings, Columbia said it is considering buying 17 other office properties for another $970 million.
Lead underwriter on that deal was Wachovia Securities with help from Robert W. Baird & Co.; A.G. Edwards Inc.; Legg Mason Wood Walker Inc.; Raymond James Financial Inc.; Ferris, Baker Watts Inc. and Wells Fargo Securities LLC.
Oliver Carr declined to comment about the offering.
Terence O'Hara's e-mail address is firstname.lastname@example.org.