The commercial real estate sector is still in the mergers and acquisitions mode, with two newannounced in late May involving a national brokerage firm and a commercial mortgage lender. But the rationale for such transactions seems to be getting murkier, with analysts wondering whether the deals make sense for all parties.
On May 22, nationalhouse Grubb & Ellis announced a definitive merger agreement with Santa Ana, Calif.-based NNN Realty Advisors, Inc., an asset management firm that specializes in tax-deferred property exchanges, to form a joint real estate services firm with a total capitalization of $725 million.
The same day, New York-basedcompany iStar Financial, Inc. announced a definitive agreement to acquire the commercial real estate lending business and 30 percent of the $6.5 billion commercial loan portfolio of Santa Monica, Calif.-based Fremont General Corp. for approximately $1.9 billion.
The Fremont deal comes as no surprise as the company was one of the lenders hit by the crash in the sub-prime market. The deal will allow Fremont to take down the risk on its debt and will extend iStar's geographic reach. But it could end up being a Trojan horse for iStar, says Morningstar analyst Erin Swanson. “The question in our eyes is how much exposure does iStar now have?” she asks. “The [actual] cost of the transaction can be much higher than the [$1.9 billion] purchase price.”