WP Carey Seeks to Raise $1 Billion to Pursue Sale Leaseback Deals in Europe and Emerging Markets Worldwide

Reuters - June 23, 2009

U.S. real estate financing firm W.P. Carey (WPC.N: Quote, Profile, Research, Stock Buzz) is looking to raise $1 billion of capital to fund its expansion into European and emerging property markets, its president and international transactions head told Reuters.

"We have many more opportunities outside the U.S. ... I would like to see us do $500 million of deals in Europe in 2009 and that is very realistic," Edward LaPuma told the Reuters Global Real Estate Summit on Tuesday.

"I'd like to do $1 billion but we're doing a lot of all-equity deals at the moment and that really puts a ceiling on things," he said, adding the firm has about $600 million of cash on deposit.

The fundraising plans represent the firm's first active cash call since 2006-2007, when it stopped seeing investment opportunities that were worth splashing out on.

LaPuma said the plans were devised to fully exploit an impending $10 billion to $12 billion wave of real estate disposals from European corporate occupiers, who were considering cashing out of their property as traditional sources of capital dried up.

"I don't know how many large principals shut down fundraising in those years, but if you didn't you had to put the money to work and a lot of deals were done in that period that didn't make a lot of sense," LaPuma said.

"But in today's market, we are seeing more deals than I have seen in the last 15 years. Companies are really being forced to consider financing alternatives," he said. The "sale-and-leaseback" specialist, which in March sealed a $225 million deal to buy and lease back part of the Manhattan headquarters of the New York Times newspaper (NYT.N: Quote, Profile, Research, Stock Buzz), is also scouting opportunities in Brazil, the Middle East, India and China, where LaPuma hoped to conclude the firm's debut deal soon.

"We have been trying to do a deal there (in China) for some time but it is complicated. More people who go there lose money than make money," he said.

"Before the end of the year we will target a few other places we want to be in," LaPuma added, citing Southeast Asia as another particular region of interest.

WP Carey, which has offices in New York, Amsterdam, London and Shanghai, recently closed a $25 million deal in Malaysia, will finalize a $30 million deal in London and a $100 million deal in Hungary in the next week, LaPuma said.

PORTFOLIO SHIFT

The firm, which holds 70 percent of its $10 billion to $11 billion portfolio in the United States, expects its exposure to Europe and emerging markets to rise to 50 percent from 30 percent in the future.

In the meantime, LaPuma said the team was striving to deflect losses inflicted by the biggest banking and property sector meltdowns seen for generations in its core U.S. market.

"We take on corporate credit risk, and as companies are having a more difficult time, we have seen our corporate default risk increase by probably around 400 percent since the beginning of last year," LaPuma said.

"But we have done a good job to manage this, we still have a vacancy rate of around 1 percent across all our funds," he said.

LaPuma said he expected a slow recovery for the U.S. commercial real estate market, largely because of the colossal burden of real estate mortgages weighing on bank balance sheets.

"The last real estate bubble was really developer driven and then they didn't have users for the property. This time there are users for the property, but people paid too much," he said.

"I think you're probably less than halfway through (the U.S. slump) but I don't think it will get a lot worse, I just don't think the recovery will come that quickly." Sphere: Related Content