ORIX widens focus to acquisitions

Real Estate Alert, June 9, 2004

ORIX Real Estate Equities, an active developer, is broadening its strategy to include the purchase of properties.

The Chicago firm, a subsidiary of Japanese financial-services giant ORIX Corp., has built 85 office, retail, industrial and residential properties in the U.S. and Canada over the past 10 years. The buildings were put up for sale as they were completed.

While the company will continue development, it will also start buying properties--mostly office properties and retail centers suitable for redevelopment. ORIX plans to hold the properties for three to six years on average. Investment targets have not yet been determined.

The company has hired a former RREEF executive, Eric Wollan, to head the effort. One or two more acquisition specialists will be added. They will report to Wollan, who is a vice president.

ORIX also plans to develop relationships with brokers both to market the properties it develops and to scout out suitable property investments. The company traditionally sold its developed properties through an in-house sales team headed by veteran Edward Rowe. But ORIX disbanded the disposition team earlier this year, leading to Rowe's departure.

David Brown, who became chief executive of ORIX in January, has been meeting with various brokerages. "We want to dispose of our stabilized assets, but we're not in liquidation mode," Brown said. "We want to sell opportunistically. We will be hiring brokers to help us with that, and we also want brokers to bring us deals."

Brown and Wollan are looking for stabilized retail properties valued at $25 million to $75 million that have a core-plus or value-added component. They will consider larger markets throughout the country, with an initial focus on Denver, Atlanta, Seattle, Boston, and markets in Texas and Florida.

ORIX will take majority stakes in acquired properties and seek local operating partners that will provide the rest of the equity and provide hands-on management.

The firm has about a dozen development projects in the pipeline, all of which will be marketed upon completion. One completed property that ORIX is teeing up for sale is the 250,000-square-foot Promenade at Howard Hughes Center in Los Angeles. The shopping center gets nearly half of its revenues from a 17-screen movie theater operated by Bridge Cinema. Retail players said the theater's credit is guaranteed by Viacom. But nonetheless, the center's heavy reliance on the theater rent could keep some investors away. CB Richard Ellis appears to have the inside track on the listing.

An ORIX partnership also plans to offer a 480,O00-square-foot power center near Fort Worth, Texas (see story below).