CharterMac, the New York multifamily finance specialist, has agreed to buy the Dallas high-yield commercial real estate debt specialist ARCap Investors LLC.
The publicly traded CharterMac already owns 10.7% of the privately held ARCap, which has about 100 employees and manages more than $2.8 billion of commercial mortgage securities for itself and institutional clients.
The deal was announced Thursday, is expected to close in the third quarter, and still needs approval by ARCap’s other shareholders. It values ARCap at $284.5 million.
In a press release, Marc D. Schnitzer, CharterMac’s chief executive, said that buying ARCap would continue “the transformation of our company from a spread investor to a real estate fund manager.”
In 2003 CharterMac bought Related Capital Co., which also focused on multifamily finance, particularly affordable housing, for $338 million. Last year, its $84 million acquisition of Capri Capital Finance gave CharterMac a 49% interest in the commercial mortgage bank’s pension-fund advisory arm. Buying ARCap would add debt and equity investments in retail, industrial, and office properties to the types of assets CharterMac manages.
CharterMac plans to make a cash payment of $210.3 million to ARCap’s third-party owners. It would also swap convertible common share equivalent securities worth $5 million for a 2.1% stake held by ARCap’s management; pay $39.1 million in cash to retire ARCap’s deferred compensation plans; and pay transaction fees and expenses of $4.3 million. It would also issue to ARCap employees $31.6 million of restricted common shares.
To finance the deal, CharterMac plans to take out a $350 million, six-year term loan and a $150 million revolving credit facility from UBS Securities LLC and Bank of America Corp.
ARCap is to become a unit of CharterMac and keep its name. ARCap’s management, including chairman and CEO Leonard W. Cotton and president J. Larry Duggins, would continue to oversee day-to-day operations. Mr. Cotton would become CharterMac’s vice chairman and Mr. Duggins would become ARCap’s CEO.
CharterMac said that the acquisition probably would not affect cash available for distribution per share this year but that it would probably boost it in 2007.
UBS Securities acted as financial adviser to CharterMac and Paul, Hastings, Janofsky & Walker LLP acted as legal counsel. Bear Stearns & Co. Inc. was the financial adviser to ARCap and Orrick, Herrington & Sutcliffe LLP was its legal counsel.
