Attached files
| file | filename |
|---|---|
| 8-K - Behringer Harvard Mid-Term Value Enhancement Liquidating Trust | v171540_8k.htm |
| EX-99.2 - Behringer Harvard Mid-Term Value Enhancement Liquidating Trust | v171540_ex99-2.htm |
SCRIPT
FOR
BEHRINGER
HARVARD MID-TERM VALUE ENHANCEMENT FUND I LP
CONFERENCE
CALL
JANUARY
15, 2010
OPERATOR:
Welcome
to the conference call for Behringer Harvard Mid-Term Value Enhancement Fund I
LP. Now, let me introduce Stan Eigenbrodt, counsel for the
Fund.
STAN
EIGENBRODT:
Before we
begin, please note that statements made during this call that are not historical
may be deemed forward-looking statements. Future events and actual
results, financial or otherwise, may differ materially from events and results
discussed in the forward-looking statements due to a variety of risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Please refer to Behringer Harvard
Mid-Term Value Enhancement Fund I LP’s filings with the Securities and Exchange
Commission, specifically the annual report on Form 10-K for the year ended
December 31, 2008 and the quarterly reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 2009, for a detailed discussion of these
risks and uncertainties.
It is
also important to note that today’s call may include time sensitive information
that may be accurate only as of the relevant date to which it
relates. Behringer Harvard Mid-Term Value Enhancement Fund I LP
assumes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
I will
now turn the call over to Mr. Bob Aisner, the Chief Executive Officer and
President of Behringer Harvard Advisors I LP, a general partner of Behringer
Harvard Mid-Term Value Enhancement Fund I LP.
1
BOB
AISNER:
Thank you
operator and thank you to everyone who has taken time to dial into this
valuation conference call for Behringer Harvard Mid-Term Value Enhancement Fund
I LP. With me today is Sam Gillespie, the Chief Operating Officer of
the Fund’s advisor. Sam will have some remarks later in this
call.
As you
know, this call is to discuss the new and revised per unit valuation of
Behringer Harvard Mid-Term Value Enhancement Fund I LP. There are
various circumstances that could cause a fund to provide an estimated value of
its units, such as a fund requirement, or a desire to assist broker dealers and
custodians with FINRA 09-09 and ERISA reporting requirements. In this
case, the Fund’s partnership agreement requires that beginning with the fiscal
year ended December 31, 2009, the Fund’s general partners provide its limited
partners annually an estimate of the amount a holder of limited partnership
units would receive if the Fund properties were sold at their fair market values
as of the close of the Fund’s fiscal year, and the proceeds from the sale of the
properties (without reduction for selling expenses), together with other assets,
were distributed in a liquidation of the Fund.
Before
discussing the estimated valuation that has been established for the Fund and
some specifics regarding financial performance and specific asset reviews, I
thought it might be helpful to give you a high-level review of recent economic
indicators.
2008 and
2009 have been rough years for our economy, as you can all attest, as well as
for the real estate industry, which is the ultimate reflection of the
economy. On the positive side, GDP in 2009 was virtually flat in the
second quarter after being negative 6.4% in the first quarter, and recorded a
recently revised 2.2% growth rate in the third quarter. From a GDP
growth point of view, we appear to be past the bottom of the
recession. Unfortunately, GDP growth does not necessarily imply job
growth, and in fact, job growth generally turns positive approximately 12 to 18
months after GDP turns positive. The most recent figure
pegged national unemployment rates at just over 10% at the end of the third
quarter, and if you count those people no longer searching for jobs, the figure
is closer to 17%. December’s jobs numbers, just released, showed a
loss of 85,000. Since employment peaked in 2007, our economy has lost
more than 7.2 million jobs. As we know, jobs are the key to office
occupancy and consumer spending. Consumer spending accounts for more
than two thirds of GDP and until jobs return and the consumer feels confident
and starts to spend, all real estate asset classes will remain
weak. We thus await the return to positive job growth with
baited breath.
2
Given
that all of the assets in the Fund are suburban office assets, office data is
most important. The national vacancy rate as of the end of the third
quarter, depending on the data source, indicates overall vacancy at 17%, with
suburban vacancies at 19%. Early forecasts show that the fourth
quarter did not show any improvement. Vacancy rates have climbed for
eight consecutive quarters, and as job losses continue to mount, all indications
are that these rates will continue to climb through 2010.
In such
an environment, the tenant is in a better position than the landlord when it
comes to renewing leases or negotiating new leases. It is definitely
a renter’s market. Rental rates have fallen nationally, and PPR
projects that rents will fall 22% between 2008 and 2010. Further,
sublease space is frequently offered at 25-35% discounts below direct lease
space. Additionally, new tenants demand more in tenant improvements,
which cost more money than the renewal of existing tenants, putting pressure on
cash.
To put
this in perspective, Sam will discuss this in more detail specific to the
Company’s overall portfolio occupancy and operations.
We
believe that office occupancy is a lagging indicator in the
economy. Businesses reduce their space needs or give back space as
the economy slows and are reluctant to expand until they are sure that the
economy and their business are in recovery. PPR projects that
office absorption will be a negative 150 million square feet in 2009 and will
total a negative 229 million square feet from 2008 to 2010. As we sit here
today, we believe there are signs that the economy may be bottoming out, or at
least it is not getting worse as fast. GDP growth has turned
positive; the pace of job losses has lessened although we are still losing jobs
each month; the housing market in many cities appears to have bottomed out with
recent sales at higher prices, albeit well below the prices seen at the peak of
the market; but the consumer is still bearish. There may be green
shoots showing, but we believe that office demand will lag a recovery by 12 to
18 months.
3
In the
wake of the deepest economic recession since the great depression, we have come
to a time for valuing the units in this Fund. As some of you may
know, FINRA 09-09 does not stipulate a valuation methodology, but as I mentioned
previously our partnership agreement requires us to value our units assuming
that the assets are sold as of December 31, 2009. Because of this, we
have been forced to produce this number at a time when values are at or around
the bottom.
Our
partnership agreement also requires us to use an expert independent third party
advisor in connection with this estimated valuation. To comply with
this requirement, we hired Robert A. Stanger & Co., Inc. to work with us on
the valuation and have arrived at an estimated value of the units of
$7.09.
Robert A.
Stanger & Co., founded in 1978, is a nationally recognized investment
banking firm specializing in real estate, REITs and direct participation
programs such as the Fund. As required by our partnership agreement,
the general partner has obtained from Robert A. Stanger & Co. its opinion
that this valuation is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. I should note that as
with any estimated valuation, this valuation is subject to a number of
estimates, assumptions and limitations, which are discussed in detail in the
Form 8-K we filed yesterday with the Securities and Exchange Commission
regarding this valuation.
4
A couple
of final comments before I turn this over to Sam to discuss the real estate
assets specially. First, this valuation mandated the assumption that
these assets be sold in the very near future. We do not intend to
sell these assets until we feel that it is the right time and that we can
harvest value for our investors. Our asset management group is
focused on maximizing the value of these assets. Second, the Fund has
continued to pay its 6% distribution since March 2004 without alteration, in
spite of the depth and severity of the current recession. Third
and finally, the Fund is still within its prescribed timeframe of liquidation
per the partnership documents and we intend to push forward to meet the timeline
assuming the world returns to normality.
This
estimated valuation represents approximately a 29% decrease on an unloaded basis
from the initial unit price, and approximately a 17% decrease on a loaded
basis. In a world where mark to market real estate valuations are
down 25-40% and the stock market and public real estate markets are still down
50% from peak, while we are not pleased with this current valuation, we do not
believe it is outside of a range of reasonableness and good stewardship of the
invested funds.
Now let
me turn the call over to Sam.
SAM
GILLESPIE:
Thanks,
Bob. I also want to welcome all of you to the call. I
would first like to add my thoughts on the real estate market. We
believe that 2010 will be better than 2009, but office space and hotel room
demand will still be tepid. The financing market has bifurcated, with
multifamily financing readily available through agencies such as Fannie Mae and
Freddie Mac, while commercial credit remains tight, with underwriting
requirements also remaining very onerous. Of course, because this
Fund has no debt, it does not feel as much negative influence from the credit
market.
We think
property values have bottomed out, but the recovery will be multi-staged and
gradual. We expect property values to remain relatively stable in
2010, perhaps even increase, but there is a chance that interest rates may move
higher, blunting any improvement in cap rates. As the job market
stabilizes and gradually gives way to job growth, improving commercial real
estate demand fundamentals will set the stage for NOI growth in
2011-2012.
5
Because
three of the five remaining assets in the Fund are in Dallas, it is important to
review the health of the local economy as compared to the balance of the
country.
The
Dallas-Fort Worth economy has weathered the economic storm much better than most
of the nation. As of November 2009, Dallas had an unemployment rate
of 7.9% compared to the national average of 10%. Since the metroplex
has a relatively stable housing market, steady population growth, and job losses
, which as a percentage of labor force, are just half of the national average,
the Dallas – Fort Worth market should hold up better on both fundamentals and
performance metrics moving forward. According to Moody’s economy.com,
the local job market has already bottomed out and is forecasted to add 60,000
jobs in 2010.
We’re
pleased to report that the portfolio is 96% leased, but tough real estate
markets demand active asset management. Behringer Harvard has been aggressively
managing the assets of the Fund and the results have been favorable to the
operations of the properties.
As we
have reported in previous correspondence with the Fund investors, the lease with
Sungard at the Hopkins, Minnesota property was renewed upon favorable terms
early in 2009. After the majority of the rental concessions had
burned off, we have had some interest from a purchaser, and are evaluating their
proposal to see if selling the building now makes sense for the Fund and its
investors.
Our
leasing efforts in our Dallas properties have been very active as
well. We have signed two leases with new tenants at the Parkway Vista
building, bringing occupancy back up to 73% as of today. Our leasing
team is also in discussions with two existing tenants about potential
expansions. We are also trading renewal proposals with our single
tenant, Air Supply Components, at the 1401 North Plano Road
building. We remain optimistic that we will be able to renew this
tenant. It appears at this time that the tenant at 2800 Mockingbird
in Dallas is considering not renewing so we have listed the building for sale or
lease with a local broker that specializes in that particular
submarket. Two prospects have already inquired about the asset, one
for a potential lease and the other for potential sale of the
asset.
6
In
addition to our leasing and marketing efforts, we have re-doubled our efforts
with the taxing authorities and challenged every assessed value of every single
asset. As a result, property taxes on our Mid Term Fund assets will be
approximately $62,000 less in 2010 than they were in 2009.
Before we
close the call, I would like to address some questions that I know a number of
you may have:
1. Are
the Mid-Term investors going to get their principal back?
I just
can’t really speculate on that. As both Bob and I have said, we are
working diligently to harvest value at the appropriate time for our investors,
and we will continue to do so.
2. What’s
the timeframe for liquidating this Fund?
As you
may be aware, the initial time frame for liquidation of this Fund is 5 to 8
years from the end of the public offering, which was February
2005. As a result, we are just entering that time frame, which will
run until February 2013. As Bob and I have both said, we will be
working to dispose of these assets within that timeframe and when we think it
makes sense for the Fund and its investors, and in fact as we have mentioned we
have some interest in one of the properties.
Let me
thank all of you again for taking the time to call and listen to this discussion
of the Fund’s estimated valuation; we hope that it has been
helpful. If you have additional questions, please contact your
internal wholesaler, and we will work to answer them.
This
concludes our remarks. Let me turn it over to the moderator for a few
instructions regarding some housekeeping matters.
7
OPERATOR:
If you
would like a copy of the PowerPoint presentation and script from today’s call,
the Fund has filed it as an exhibit to its Current Report on Form 8-K with
the Securities and Exchange Commission, which can be accessed on the website
maintained for the Fund at www.behringerharvard.com or from the SEC’s
website at www.sec.gov. Access to the filing is free of
charge.
Lastly, a
playback of today’s call will be available on the password-protected portion of
the Fund’s website. The file will be titled “January 15, 2010
Conference Call Replay: Behringer Harvard Mid-Term Value Enhancement Fund I LP
Estimated per Unit Valuation” and will be the last link on the left sidebar once
you are logged in. Please note that in order to view the link, you
must log in using your DST Vision ID. The recording will be posted as
soon as possible and will be available until February 1, 2010. For
further information regarding the playback of this call, please contact a member
of your wholesaling team at 866.655.3600.
Thank you
for attending, and this call is now concluded.
8