Charlotte, N.C.—Bank of America announced plans to buy troubled home loan giant Countrywide for about $4 billion Jan. 11. The purchase will make Bank of America the nation’s largest mortgage lender and loan servicer at a time when crisis in the home mortgage business threatens to push the U.S. economy into a recession.
“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price,” said Bank of America Chairman and CEO Kenneth D. Lewis.
The deal follows Bank of America’s $2 billion investment in Countrywide last August and will give Countrywide stockholders about $6.90 a share in Bank of America stock, based on BofA’s share price at press time. That represented a 19 percent premium to Countrywide’s closing share price at press time.
The market value of Countrywide, based in Calabasas, Calif., has plunged 87 percent to $3.36 billion over the past 12 months as defaults and foreclosures drove the lender to declare a $1.2 billion loss in the third quarter, the home mortgage giant’s first loss in 25 years. The company is also vulnerable to shareholder lawsuits and questions about its conduct in bankruptcy proceedings involving its customers. However, Bank of America has denied rumors that Countrywide was on the brink of bankruptcy.
Bank of America expects the transaction to close in the third quarter and plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009.
Boston Capital Sells REIT
Boston—Boston Capital sold its real estate investment trust (REIT) to an affiliate of BPG Properties, Ltd., a private equity real estate fund manager based in the Philadelphia area that owns more than 24,000 apartments in 21 states. The transaction closed Jan. 15.
Formed in 2003, the Maryland-based REIT owns interests in a portfolio of 11 apartment properties consisting of 3,098 units in Washington, Oregon, Utah, Florida, and Texas. The REIT’s parent company, Boston Capital, is a leading investor in affordable housing, though the units in the REIT’s portfolio rent at market rates.
The all-cash transaction offered the Boston Capital REIT stockholders a price of $13.30 per share, which represented a 33 percent premium to the REIT’s initial $10-per-share offering price, plus a pro rata portion of the regular monthly dividend.
The purchase agreement was announced last November. Since then, BPG has purchased 483 units at three communities in Kansas City, Mo., for $22.4 million, and 308 units in a Class A apartment complex in Upper Gwynedd, Pa.
Dutch Pension Fund Commits to Multifamily
Following its initial $100 million commitment last spring, Dutch pension fund PGGM will invest an additional $100 million in Behringer Harvard’s expanding portfolio of Class A apartment communities. PGGM has an option to increase its commitment to a total of $300 million.
PGGM is a pension fund for Dutch health care workers with more than $100 billion in assets. It is the secondlargest pension fund in the Netherlands, the eighth-largest in Europe, and the 17th-largest in the world.
Robert Behringer, founder and CEO of Dallas-based Behringer Harvard, said that since initially partnering with PGGM in May, his company “has completed, or is in the final stages of completing, transactions in 11 outstanding Class A apartment assets.” They are or will be located in the metropolitan areas of Atlanta; Dallas; Denver; Houston; Fort Lauderdale, Fla.; Las Vegas; and Washington, D.C.
This is the pension fund’s first direct investment in U.S. real estate. Behringer Harvard and PGGM are co-investing with multifamily developers such as Fairfield Residential, Trammell Crow Residential, and the Altman Cos.
The duo plans to focus on upscale developments in areas with high barriers to entry and hold the assets for seven to 10 years.
Behringer Harvard will provide strategic management for each joint venture, including acquisition, asset management and disposition services, legal and accounting services, and property management.
East Palo Alto Imposes Six-Month Rent Freeze
The East Palo Alto, Calif., City Council passed an ordinance imposing a sixmonth rent freeze after some community members expressed concern over a move by locally based Page Mill Properties to increase rents at about 1,300 units Dec. 1. The proposed increases range from $36 to $150.
Page Mill Properties has acquired 1,620 apartments in the community over the last 15 months. About 1,300 of the company’s units are governed by the community’s rent stabilization ordinance, which covers about 2,500 apartments in all. Page Mill CEO David Taran has said he plans to file a lawsuit, according to a report in the San Jose Business Journal.
Landlords whose properties are covered by rent stabilization laws are permitted to raise rents annually by the rate of inflation as set by the federal government.
In question is whether those annual increases can be saved from year to year when they are not applied, and then imposed later.
MBA Praises HUD’s MIP Decision
The Mortgage Bankers Association (MBA) lauded the Department of Housing and Urban Development’s (HUD) decision to rescind a notice that would have increased the mortgage insurance premiums (MIP) of a number of multifamily programs.
“After the administration proposed the fee increase in its 2008 budget, 117 members of the House and 38 senators signed letters to HUD opposing the premium increase. HUD listened to those concerns as well as the 229 letters submitted by the industry stating the Federal Housing Administration is a vital financing mechanism, particularly in the current volatile credit markets,” said MBA Chairman Kieran Quinn in a prepared statement.
The MBA provided evidence that the programs affected by the increased fee were providing affordable housing. The MBA survey, which looked at programs affected by the proposed MIP increase, found that 98 percent of the properties had average rents affordable to families earning 80 percent or less of the area median income.