Yarmouth acquires tower debt

January 07, 1995|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

Capping off 1994 with the largest downtown commercial real estate transaction of the year, the Yarmouth Group Inc. has acquired the debt on the 26-story 250 W. Pratt St. office tower.

The Dec. 31 transaction, estimated at $32 million by executives familiar with the sale, could signal the start of a recovery for the languishing city market, as institutional investors typically make

investments which provide solid returns.

"Baltimore is a major city, and we believe the market there is strengthening," said Ed Meyer, senior vice president at Yarmouth, a New York-based pension fund adviser.

Yarmouth is expected to receive annual returns on its investment of more than 20 percent, because building owner Cabot, Cabot & Forbes Inc.'s mortgage payments will continue to be based on the $56 million the Boston firm borrowed to develop the project in 1985.

"Obviously they saw an opportunity to buy at a heavily discounted price," said John A. Pirovano, president of Cabot, Cabot & Forbes. "And they will get the benefit of that discount. The yield here is very attractive. The Yarmouth people are long-range, savvy players, so in my mind this shows signs of life for downtown."

Yarmouth, which controls assets valued at $6.5 billion, bought -- the debt on the 357,112-square-foot tower from New York-based Apollo Real Estate Investments Ltd. Partnership and Washington partner Bailey Realty Co. The debt was purchased on behalf of an investment fund Yarmouth created early last year, Mr. Meyer said.

Apollo, a $4 billion merchant bank, bought the debt of 250 W. Pratt in December 1993 for $22.25 million.

Various large investors, such as Apollo and Yarmouth, have bought real estate debt at discounts over the past three years in an attempt to gain effective control of properties and earn high returns.

It was not clear why Apollo decided to sell the debt after owning it such a short time. The sale, though, did generate a 44 percent return to the fund, based on the $32 million sales price.

As part of the purchase, Yarmouth will control both leasing and management of the tower, which are ordinarily a developer's responsibilities. Cabot, Cabot & Forbes agreed to relinquish those duties when Apollo and Bailey assumed control of the mortgage, Mr. Pirovano said.

The 250 W. Pratt St. tower is presently 93 percent committed to tenants. In all, its annual rental income is roughly $8 million.

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