Behind Exeter's $3B real estate sale

Ward Fitzgerald traces the roots of Exeter Property Group’s recent $3.1 billion portfolio sale to the late Willard G. Rouse III.

A revered developer who forever changed Philadelphia’s skyline with the construction of One Liberty Place, Rouse mentored a deep bench of aspirants before he died too early at the age of 60 in 2003. Fitzgerald was one of them.

When Fitzgerald left Liberty Property Trust (NYSE:LPT), the firm that Rouse formed, and started Exeter in 2006 with Tim Weber, he cultivated what he called a “ragtag team that was skilled in real estate and finance.” Many of them were Liberty alumni though Weber’s pedigree came from Terramics Property Co., where he had been a partner.

“We did it in the entrepreneurial spirit of Bill Rouse,” he said.

The company decided to focus on industrial real estate. It figured that a confluence of variables including technology, e-commerce, bar codes that allowed a faster and more efficient movement of goods and a rise in disposable income would eventually lead to an evolution in modern big box warehouses. Industrial properties that were constructed three decades ago were functionally obsolete, providing an opening for companies such as Exeter to swoop in and make their mark.

It was a rough start. No income was generated the first year and Fitzgerald and his team went out to raise money. In May 2007, Exeter closed on its first fund, which totaled $352 million. It went on a buying spree and the company was finally realizing what it had set out to do. The excitement was short lived. The recession hit and the company ended up having to make $75 million in write-offs.

“Our group stayed the course and came out of the recession battered and bruised,” he said.

In 2010, Exeter went out to raise its second fund and closed in 2011 on $615 million. That money was spent building up its core investment properties. A third fund totaling $400 million was raised in 2014 and deployed to help secure long-term leases and modernize the portfolio.

One of the characteristics that differentiated and helped Exeter, according to Fitzgerald, was its structure. It was set up to operate like an “old school real estate company,” he said. “We were an investment firm second and that lead to the progress we have made.”

That meant hustling for tenants, tending to them and taking care of the real estate. Exeter, based in Plymouth Meeting, Pa., maintains 11 regional offices throughout the United States.

Armed with its funds, the portfolio grew to 209 properties totaling 58 million square feet in 25 markets. Once the portfolio was stabilized with tenants and long-term leases, Fitzgerald and his team decided, after spending so much time blocking and tackling, it was time to make a move. Interest rates were sure to rise and capitalization rates were at a certain level.

“The timing to sell couldn’t get much better but only worse,” he said.

Fitzgerald and Weber started to market the portfolio this past February.

They traveled to the Middle East, Asia, Europe and Canada and approached real estate investment trusts and pension funds based in the United States to see if there was any interest.

There was.

In May, about 90 days after the process was initiated, multiple offers were made though Fitzgerald declined to disclose how many. Exeter ended up taking the highest offer and had confidence it would close. Due diligence was extensive and complicated because of the portfolio’s size. It took a while but a deal was finalized Dec. 18.

Considering that it was among the largest industrial transactions done this year and one of the biggest involving a Philadelphia area real estate firm, it went smoothly overall, he said.

Exeter sold the properties to a joint venture of Henley Holding Co., a subsidiary of the Abu Dhabi Investment Authority, and the Public Sector Pension Investment Board, which is one of the largest Canadian pension investment managers.

Exeter has invested in the joint venture and will continue to manage the purchased properties.

The sale doesn’t mean Exeter is done.

It has a value-add fund totaling $832 million that is focused on big box warehouses and multi-tenant logistics facilities in the United States. It has another $600 million fund that will acquire core assets as well as a fund totaling 300 million euros that is buying warehouses throughout Europe.

Source: Philadelphia Business Journal