Wednesday, October 17, 2012

Behringer Harvard Struggles With Some Past Deals While Breaking Ground for New Investments

During the last few weeks, investor Behringer Harvard has announced new apartment developments in Dallas and construction of an office tower in Houston. The company is funding a rental community in Allen and buying land in Houston for another development.

Not all of the Addison-based company’s recent news has been as positive. A Behringer Harvard fund has put its property in Frisco under bankruptcy protection. And, earlier this year, the investor let lenders foreclose on its northeast Dallas condo tower — the Palomar Residences.

One of Behringer Harvard’s funds is preparing to hand over to the mortgage holder a Far North Dallas office property that’s sitting empty.
Behringer Harvard Opportunity REIT I took on more than $40 million in debt in 2007 to buy a big chunk of the Frisco Square development on the Dallas North Tollway. While the project has continued to grow, Behringer Harvard couldn’t extend or refinance the debt on the property and was forced to put the deal in bankruptcy during the summer.

“The property is performing very well,” Aisner said. “But the debt markets for opportunity funds have not come back.” The investor has had better luck refinancing lower-risk, income-producing properties.
Like many commercial real estate investors, Behringer Harvard keeps its properties in separate buckets — different funds with separate investors. The company — which will be a decade old next year — has more than $11 billion in assets it manages. Its investment partners include South Korea’s National Pension Fund and the PGGM Private Real Estate Fund of the Netherlands. Other investors are wealthy individuals.
“Behringer Harvard is the entity that raises the capital and manages the real estate,” Aisner said. “They are all closed-end funds. That’s why the company can be moving ahead with new investments while still fighting fires with deals funded before the recession.
 “People might say, ‘Gee, how can they be building a building in Houston while at the same time putting a property like Frisco Square into bankruptcy,’” Aisner said. “The funds we have raised post-recession feel much better because we bought them after the bottom.”

What’s happening at the Addison investment firm is going on — to lesser and greater degrees — in real estate operations all over the country.

Free Movies in Frisco Square
Most of Behringer Harvard’s real estate assets are income-producing office buildings and apartments. Higher-risk funds invested in land — including property in Frisco Square — and condominiums in Dallas and Colorado. Behringer Harvard’s Short-Term Opportunity Fund I LP — which owned the Palomar — saw its value drop by almost 50 percent last year and has continued to struggle, according to some reports.

And an investor in Behringer Harvard’s REIT I is suing the firm because of poor performance and foreclosures on several properties. That’s the same real estate investment trust that’s now building the Houston office tower and will soon allow foreclosure on its Waterview building in Far North Dallas.
The company is shifting gears to meet changing investor desires.
Steve Brown
Real Estate Editor
Dallas Morning News