Soros purchase mostly Midwest

Real Estate Weekly, Sept 22, 1993 by Lois Weiss

The announcement that heralded the George Soros and Paul Reichmann-led Quantum Realty Fund's acquisition of real estate assets for some $634 million in cash earlier this month pointedly omitted the location of those assets.

The properties, formerly held by the Travelers Corporation, include some 47 assets comprised of 35 properties and 12 commercial loans. There are several hotels, nearly 6 million square feet of commercial space and 6,000 residential units with the largest concentrations in the southeast and the Midwest.

Some of the more well known assets include: * South Park Mall, a 600,000-square-foot shopping center in San Antonio, Texas * 99 Summer Street, Boston, Massachusetts * The Davenport Building, a rehabilitated complex of factories in Cambridge, Massachusetts * Crescent Center, a 350,000-square-foot building in Memphis, Tennessee * Premier Place in Dallas, Texas, a 400,000-square-foot, 20-story glasss-heathed office tower * Western Place, in Forth Worth, Texas * Perimeter Center in the elegant north end of Atlanta, Georgia * A portfolio of 12 high-rise rentals consisting of 3,000 units in in South Florida, primarily in South Miami Beach and Hollywood Bay Harbor (The ownership interest in these takes the form of loans that are scheduled to become equity interests under the bankruptcy formula laid out by Travelers with the former owner.)

Hotels include:

Plantation Holiday Inn, Plantation, Florida * Mariott Courtyard, Houston, Texas * St. Louis Hilton, St. Louis, Missouri * Hampton Inn, West Springfield, Massachusetts

Leonard Chazen, president of the U.S. Division of Reichmann International, said they think they paid a fair price for the portfolio on which Travelers will take a $20 million realized investment loss.

"We hope to have a nice current yield," Chazen continued, "and while there is space to be leased and leases to roll over, it's all quite gradual. We don't have any buildings that require heavy leasing and there are no large portions of the portfolio turning over any one year. That gives us nice protection and a manageable task.'

The acquisition was paid for in cash that was made possible in part with $353 million from a commercial mortgage security bridge loan from Kidder Peabody.

That comes due early next year at which point a permanent financing arrangement will kick in. The main change is that the maturity is much longer," explained Chazen.

Carl Kane, managing director of Kenneth Leventhal, who worked on the transaction, said this is an example of how commercial mortgage securities are being used in a variety of creative ways to facilitate and finance income real estate.

Quantum Realty Fund and its affiliates contributed $300 million, of which about $90 million was provided by George Soros and Soros family investment entities. Soros pocketed approximately $100 million himself last month by selling gold during a surge in the bullion markets.

Quantum Realty Fund was launched in March and Paul Reichman, the executive chairman of Reichmann International who also heads die beleaguered Olympia & York Developments, was named its manager.

The fund is currently not open to American investors. Soros is exploring the possibility of opening investment by securitizing the properties through a Real Estate investment Trust.

Chazen said they are currently examining the way in which they hold these assets. "We don't have to do that," he said, of packaging some into a REIT. "We have to determine the best financial strategy.,

Quantum Realty Fund still has $500 million in equity resources available to continue real estate investments in the U.S. and Canada, including New York City. The money is being held in Quantum Group assets which have appreciated 35 percent since March, according to a spokesperson.