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RREEF America III Overview

September 9, 2009

The Registry has written up an article outlining RREEF’s troubled America III fund, which we discussed in the past. This is the vehicle behind Sunnyvale Town Center and the Peery/Arrillaga Portfolio. There was talk a few weeks ago about Stockbridge seeking to take over management of that fund.

Some big names sit on the board and have invested in this fund. It really is crazy to think how they made sense from some of these investments. What they did was the equivalent of taking a bunch of cash and buying stocks, all trading at all-time highs. And in the case of the P&A buy, a huge sum of additional capital (some $400M per the article) was spent on sprucing up the portfolio.

We understand the market was what it was perceived to be, and it is difficult to “monday morning quarterback”, and that they had equity to deploy, and all that good stuff, but when you are competing for deals of this magnitude and find yourself in a situation with so much competition, with valuations of vacant space higher than occupied income producing space, you will have a problem sooner or later. And all that took place at historically low cap rates, which amplifies the downside risk should expected rents and occupancy levels not materialize or fall – which is what has happened.

At that junction your business plan can be shortened to one page with the word HOPE on it in big 96 point font.

Anyhow, looking back at the decisions that were made, we agree it is easy to be harsh on these guys, and we’ve been pretty tough on not only RREEF, but a lot of other groups, but we’re not throwing the baby out with the bathwater here. It is worth mentioning also that a lot of these groups have excellent, hardworking people within them doing great things and are doing everything they can to keep the ship afloat. Take the RREEF leasing team for instance, the fact that they have managed to keep the P&A portfolio 75% leased in this market is pretty impressive in my opinion. That number will likely wane, but kudos to them nonetheless.

[via The Registry]

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