Friday, May 15, 2009

Equity Partner's $154M Defies Market

DALLAS-When BremnerDuke announced last fall it would start a $350 million project to create a dedicated cancer hospital on the Baylor University campus, no one foresaw the capital markets' crash and burn. In spite of the resulting ruin, however, Northwest Mutual kicked in $154 million of equity to ensure the construction launch later this year.

"To Northwestern's credit, they didn't waver on this, even in the face of the most difficult capital market I've ever seen," comments Jeffrey J. Cooper, executive managing director of Savills, LLC, the New York City-headquartered company that represented BremnerDuke in its efforts to find a capital partner. He tells that, in fact, Northwestern Mutual was ready to go as soon as possible. "The only delay was that the project got larger," he adds. "The hospital decided to add an extra floor and there was some movement around of tenancy and other issues with architectural and engineering due to the change."

Cooper says Savills received a variety of debt and equity proposals during the search period. What also took place during the search period was the collapse of Lehman Brothers and Bear Stearns. As a result, Cooper acknowledges, Northwestern Mutual's all-equity offer was extraordinarily attractive.

"We only had to deal with one party, and didn't have to worry about engaging different debt and equity sources. Furthermore, amid the credit chaos, there were definite concerns that lack of liquidity might have put a stop to the project. "It was clear that whoever might be providing debt might not be able to close on it," Cooper explains.

In the meantime, Northwestern Mutual becomes a partner with BremnerDuke, a subsidiary of Duke Realty Corp. in Indianapolis, IN. "Northwestern Mutual gets an investment-grade partner and an investment-grade tenant, and a project on one of the top campuses in the southwest United States," Cooper remarks.

The deal is a good one for Baylor as well. "They get a whole new cancer center and medical office building being built with third-party money," Cooper says. "With deals of this size, available equity is few and far between."

By Amy Wolff Sorter with