Marci Gordon, an attorney with the Ballard Spahr firm's… (Baltimore Sun photo by Barbara…)
This month, the Baltimore office of Ballard Spahr LLP closed a $460 million real estate deal — the largest U.S. sale of multifamily dwellings outside New York in the past three years, according to commercial real estate industry players.
The deal was a coup for the office, which represented the buyer of eight apartment complexes in Maryland and Northern Virginia that contain more than 2,500 units.
Marci Gordon, the partner who led Ballard Spahr's team of lawyers during the seven-month negotiation, said the acquisition of the apartment buildings, known as the Magazine Portfolio, by a joint venture of Pantzer Properties and Dune Real Estate Partners showed the strength of rental properties, which have benefited from the continuing slump in the for-sale housing market.
Gordon, a partner in Ballard Spahr's Baltimore office since 2006, specializes in commercial real estate and represents mainly owners and operators of real estate and institutional investors. Real estate is the largest practice area in the Baltimore office, which has handled some of the biggest real estate deals in the nation over the past year.
In a recent interview with The Baltimore Sun, Gordon spoke about the state of the commercial real estate market and the outlook for the sector in the recovery.
The Baltimore office has handled some of the largest real estate deals in the country over the past year. Can you talk about those?
In the past year, quite amazingly, we've handled three very high-profile deals.
One $500 million deal, the largest low-income housing tax credit transaction in U.S. history [in which the firm represented the New York City Housing Authority], made available significant funds for the rehabilitation of various low-income housing throughout New York.
Another major transaction, which closed over the summer, was the financing of the construction of a facility for the National Nuclear Security Administration … a 1.5 million-square-foot manufacturing facility in Kansas City, Mo., that will be the new national security campus for the NNSA.
And my deal, which closed in March, was the $460 million acquisition of eight multifamily apartment complexes in suburban Maryland and Northern Virginia.
How has the Baltimore office generated its real estate work at a time when the industry has struggled?
There are many different answers to that. The multifamily sector of the real estate market has been somewhat less affected [by the downturn]. It's been more stable. More potential homeowners are renting, in addition to those put out of homes because of foreclosure or short sales. They still need homes and are renting. That asset class has remained stable and that category of investors and lenders have remained somewhat more active. Other [deals] have been truly unique deals, where expertise and relationships put us in the right place to obtain the business.
Have you seen the commercial real estate market begin to pick up?
2010 for us was when we really saw an increase. 2009 and 2008 were more difficult years, but 2010 was more evidence of recovery.
Which areas slowed down the most in '08 and '09?
Clearly loan origination and construction. Obtaining new construction financing for new development projects was extremely difficult and continues to remain difficult. Also in 2008 and 2009, the bid and the ask for acquisitions were very far apart. You had private equity firms sitting on the sidelines with significant dollars to invest … and sellers weren't at a point where they were lowering prices to a point where an opportunistic investor was willing to invest. We are far from being out of the woods. There is movement happening now, but the market has not completely recovered yet. We are still not seeing huge numbers of trades in these areas.
What does the Magazine Portfolio deal say about investors' appetite for multifamily properties?
It says investors have an appetite for multifamily properties, especially in the suburban Maryland/Washington, D.C./Northern Virginia market because of job growth in that area and the stability of the economy in that area, largely thanks to the government.
What were some of the biggest challenges in getting the deal done?
We were assuming debt rather than obtaining new financing, as many owner-operators are, and had to … obtain approvals from rating agencies and other third-party lenders. And … in Montgomery County, the county had a right of first refusal on all multifamily transactions. We had to go through that process of offering properties to the county and to the tenants.
What do some of these deals say about recovery in the real estate sector?
There is some optimism at this point. We are starting to see movement in this market. We are starting to see properties trade and loans be originated. Everyone who is watching from the sidelines still thinks the economic recovery is a work in progress.