Popular nontraded REIT puts development into bankruptcy

Latest news from Behringer Harvard 'doesn't bode well for shareholders,' says due diligence expert; trust's COO disagrees

Jun 27, 2012 @ 3:42 pm

By Bruce Kelly

A leading sponsor of nontraded real estate investment trusts, Behringer Harvard Holdings LLC, is struggling to make payments on loans in two of its offerings — and is losing real estate assets as a result.

After months of failed negotiations over $48.3 million of debt, the nontraded Behringer Harvard Opportunity REIT I Inc. this month had several properties go into bankruptcy protection. And a private placement, the Behringer Harvard Short-Term Opportunity Fund I LP, this month entered a “deed in lieu of foreclosure agreement” that transferred properties to the lender. The Behringer Harvard fund had owed $20.2 million on those properties.

The two real estate offerings have been in decline for some time. Both saw their estimated valuations decline dramatically over the last year.

Behringer Harvard Opportunity REIT I saw its estimated value decline 46% at the end of 2011 to $4.12 a share, from $7.66 a year earlier.

Also as of Dec. 31, investors in the Behringer Harvard Short-Term Opportunity Fund I LP, which had about $130 million in total assets, saw its valuation drop to 40 cents a share, down drastically from $6.48 a share as of Dec. 31, 2010.

Chapter 11 bankruptcy protection is not uncommon in real estate, and the properties in Opportunity REIT I that are in bankruptcy protection are separate from other assets in the portfolio. But it can be ominous news for investors in a REIT that's had difficulties, industry executives said.

“Every time something like that happens, shareholders take a bite in their investment,” said Anthony Chereso, chief executive of FactRight LLC, a due-diligence firm for private and alternative investments. “It doesn't bode well for shareholders.”

Jason Mattox, chief operating officer of Behringer Harvard Holdings, said in a statement that

"We do not forecast a per-share valuation for any investment program in advance of a future valuation process.

RELATED ITEM The largest nonlisted closed REITs

The two real estate offerings could be facing more trouble. The Opportunity REIT I, with $524.4 million in total assets, is sitting on an additional $68.4 million in debt that is maturing this year.

And the move to shed real estate cuts the total assets of the Short-Term Opportunity Fund I essentially in half. On a pro forma (or non-GAAP basis) and taking into account the recent loss of real estate, the fund had $64.5 million in total assets. That's compared with $112.5 million in total assets at the end of March, according to a filing with the Securities and Exchange Commission.

Mr. Chereso said that the Opportunity REIT was unlike other real estate trusts because it invested in higher-risk assets with the aim of turning them around in three to four years. The REIT also stands out for raising money between 2005 and 2007, the height of the real estate bubble, Mr. Chereso said.

When asked how the move to Chapter 11 for some of its properties would affect the REIT's estimated value, Mr. Chereso said: “You can't put a dollar and cents amount on this. We don't have enough data to put an effective value on the shares post Chapter 11,” he said.

Mr. Mattox said that the filing for bankruptcy was “clearly the best option to preserve value for our shareholders, creditors, tenants, customers and all stakeholders” at the development, called Frisco Square, in Frisco, Texas.

Behringer Harvard has been a leading seller of nontraded REITs during and after the real estate bubble, selling $5.5 billion in nontraded REITs since 2003.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 23

Conference

Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Financial health of advisory firms is excellent. Or is it?

Deputy editor Bob Hordt and senior columnist Jeff Benjamin discuss the fact that double-digit growth in revenue and assets doesn't necessarily spell a rosy future.

Latest news & opinion

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

Invesco to buy OppenheimerFunds

Deal brings Invesco another $246 billion in assets, as well as high-fee actively managed funds.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print