debtePlayers pounced harder than Shaya Prager on an office building destroyed by a pandemic It says “die”.
T.A New York company invested $671 million to purchase four remote office parks in the Midwestern suburbs. Three of his are in Chicago and one is outside the Twin Cities in Minnesota. Prager and his business partner Katherine Cartagena are focused on the middle of the country. oIt is popular with investors and has less competition than the high-growth Sunbelt market.
P.Rager and Cartagena have played an integral role in securing funding through her investment vehicle, Prana Equities, but the ability to close even when the cost of borrowed money soars has made it difficult for sellers to do so. I made my way into a broker’s speed dial. In some cases, it even blows up large office deals.
“You can count on them because you know they will perform,” said Dan Deuter, a Chicago-based broker for Cushman & Wakefield, who represented three Midwestern landlords in their recent sale to Opal. “It’s a bit of a contrarian mindset. Go where other people fear. As a result, they’re buying super-quality assets at higher yields.”
〇Pal and Cartagena were attractive enough that after Deuter’s team sold the Highland Landmark II property in the Chicago suburb of Downers Grove, Cushman moved to the newly refurbished Schumann House in the Chicago suburb of Downers Grove. I contacted them immediately regarding their interest in off-market trading of office buildings.Naperville and his five buildings, 1.7 million square feet N.Ormandale Lake Office Park M.Inesota. Opal bought both, $73 million each and he paid $366 million.
“We are longtime believers in Chicago’s downtown and suburban office market,” Cartagena said in a statement.
P.Lager did not respond to multiple requests for comment, nor did Harvey Feldheim, another of Opal’s founders. Another co-founder, Shulamit Prager, declined to comment. real when contacted by phone. No one from the company has been cited in any of the dozens of media reports and brokerage reports about the acquisition over the past two years.
W.Counterintuitive strategies can work, but they carry considerable risk. Opal and Cartagena have focused a series of purchases in the Chicago market, which is experiencing near-record office vacancy rates in both the suburbs of 27% and his downtown of 19.2%, according to JLL. Office tenants have removed more space than they have added in each market area so far this year.
MeIn addition, Boeing, Citadel and Caterpillar’s decision this year to move their headquarters away from the Chicago area has resulted in them renting space in the suburban Deerfield complex, which Opal just purchased for $180 million. I’m here. The question is whether the third-largest metropolitan area in the United States has lost some of its reputation as a global business center. It was unclear how Caterpillar’s real estate needs in the Chicago area would change with the move, and the company did not return requests for comment.
debtAdditionally, office values have changed during the pandemic, and it’s still ongoing. Even though his 90% or more of each property was leased, Opal bought half of the Midwest suburban deals at a discount from what the seller paid.
H.awaii-based James Campbell sold its 281,000-square-foot Downers Grove office west of Chicago to Prager’s firm earlier this year for $52 million ($185 per square foot), up from its 2014 purchase price. Recorded a loss of $10 million. The building’s leasing fees and upgrades cost the seller an additional $12 million while in ownership, highlighting the newly discovered risks in the suburban market.
L.Everge, Grand Lease
〇Pal’s and Cartagena’s borrowing strategies also rely on leverage and ground leases, increasing potential upside potential and the risk of disputes should property prices fall.
Haartagena assumed $294 million of senior debt on four Chicago-area properties she and Opal purchased, all financed by UMB Bank. In each case, she issued decades-long building leases to Prager’s company, and Cartagena maintained control of the land while providing opal rental income, her public records show. increase.
P.Rager used the contract to borrow $402 million. This goes beyond the debt Cartagena originally owed from her UMB, which will be repaid through the ground rent Opal pays her. The Caterpillar office will pay her $4.8 million ground lease payments from Opal to Cartagena in the first year of her 99-year term, an increase of her 2% per annum, according to public records. To do.
aCartagena borrowed at least $59 million for Chicago real estate across four transactions and took advantage of Prager’s ground lease subordinated loans. UMB Bank declined to comment. The total debt exceeds the roughly $1.1 billion Cartagena and Prager spent to acquire his four properties in Chicago.
G.Roundwreath is the fertile soil of the collision. Rent resets typically start every 20 years. While they often offer bargain prices to issuers such as Cartagena, falling asset values can hit them hard.
S.Opal’s purchase criteria consisted of a near-fully leased Class A building costing at least $50 million, said Cushman’s Deuter. The property has recently been renovated and features much-needed amenities to lure employees back into the office, and Cartagena and Opal plan to spend more to upgrade amenities in the suburbs, Prana said. a spokeswoman said without disclosing the amount. .
“Even if the tenant moves out, as long as the property is the best in its class, There are risks, sure, but you’re sitting pretty.
L.go to see
debtLaurent’s leasing effort reaches 354,000 square feet Cartagena and Opal purchased in April for $73 million, or $206 per square foot, after renovations by local landlords Franklin Partners and Bixby Bridge Capital led to a turnaround for Schumann, a building in the Chicago suburbs of Venture leased 91% completely empty during the pandemic.
R.Real estate investing isn’t the only thing Prager is interested in. He studied the Torah at the Mir of Jerusalem, the world’s largest yeshiva, his Yershalaim, cutting his edge. I run it.
a Members of Prager’s family say the CEO, who lives in Lakewood, N.J., which has a population of about 100,000, underlies his community’s belief that avoiding the public eye is key to success. Told. Opal’s own website requires company login credentials to view portfolios. This is rare among Class A office investors in the major U.S. markets, many of whom use the site to promote images of the building and talk about its appeal.
HaArtagena graduated from St. John’s University and studied real estate development, finance and investment for her master’s degree from NYU. timeAccording to her LinkedIn profile, she worked in luxury residential real estate for her family’s business.
〇pal does not limit its expansion to the center of the country. That pandemic bull bought a six-building complex in suburban Florham Park, New Jersey for $311 million in early 2020, and invested in a 680,000-square-foot building in the northern suburbs of Philadelphia. It all started with a purchase of $124.5 million. This was followed by the purchase of a 471,000-square-foot IBM-fixed building in Iselin, New Jersey for $140 million and a 260,000-square-foot building in Fairfax, Virginia, a Washington DC suburb for 5,500. purchased for millions of dollars. .
L.Last year, Opal spent $288 million in two office deals, buying the tallest building in Fort Worth, Texas and the third tallest building in Orange County, California. Also in New Jersey, she bought her four offices in Iselin for $254 million.
T.Kevin Shannon, a Newmark broker based in Los Angeles, represented Pacific Oaks Strategic Advisors in its $151 million sale of the City Tower of Orange to Opal, and invested in California. He said it was the first acquisition.
“They got a big reaction,” Shannon said. “They are probably more active than anyone in the country. Being a contrarian investor has historically paid off, and buying a suburban multi-tenant office today is contrarian.”
W.hile Opal’s largest deal is the $415 million purchase of the Wacker Drive tower in downtown Chicago, the city’s most expensive office deal since 2018, and a company located in a major city’s central business district. It was a rare pickup for me. If anything, Opal is likely to pursue deals in suburban areas where other companies don’t.
“Colliers broker Florent said the risk factor is a little lower because it’s in the best-positioned asset.