Once a US property giant, now on the verge of closing
BentleyForbes once owned such renowned properties as the Watergate office complex in Washington and Bank of America Plaza, Atlanta's tallest skyscraper. Now the company is on the verge of vanishing.
Frederick Wehba, who co-founded the Los Angeles-based real estate firm in 1993 and was chairman until 2012, said he will announce his official separation as an adviser and consultant this week. BentleyForbes now has just three employees and manages four properties, two of them small office buildings in Cleveland and Toledo, Ohio. It plans to sell the real estate within the next 12 months, then dissolve, Wehba said.
The rise and fall of BentleyForbes - named after the luxury car and business magazine - closely tracks last decade's commercial real estate boom and bust. Until the early 2000s, the closely held company owned modest single-tenant office, industrial and retail properties. Its ambitions grew, and the firm began scooping up landmark buildings at what turned out to be top-of-the-market prices -- then lost most of them in the crash. While property values have since rebounded past the last peak, the landlord has lingered as a shadow of its prior self. BentleyForbes' fortunes reflects the cycle of numerous property firms around the world and particularly in Ireland, where the market is only now improving after being decimated by the crash of the last near decade.
During the boom, "we were organizing to go public as a Reit," said Wehba, 69. That would have allowed BentleyForbes to refinance its loans and get tax benefits offered to real estate investment trusts. "We were going to go for $1bn (€878m) cash, and we were going to pay down our debt."
Instead, the market collapsed. US commercial-property prices reached a peak in October 2007 before plummeting 40pc in just over two years, according to the Moody's/Real Capital Analytics index. Values have since rebounded almost 15pc past the prior record.
"The office-transaction environment in '05, '06 and '07 was red-hot, with significant financing available through many types of buyers, and all of that spurred a meteoric rise in asset values," said Michael Knott, director of US Reit research at Green Street Advisors in Newport Beach, California. "When the music finally stopped playing, there were several large and aggressive buyers who felt some pain from an environment that became much less hospitable."
The crash took down major real estate companies including Maguire Properties, and big landlords such as Harry Macklowe and Broadway Partners surrendered towers after missing debt payments. Maguire, after a name change, was taken over in 2013 by Brookfield Office Properties, while Macklowe recovered to co-develop New York's tallest residential tower, and Broadway's Scott Lawlor made a comeback buying apartment complexes in smaller towns. BentleyForbes, in contrast, never rebounded yet never quite went away.
The company's pain from the crash stretched from Chicago and Washington to Atlanta and Dallas. In Atlanta, it bought Bank of America Plaza in 2006 for $436m, then the city's biggest real estate deal ever. Less than six years later, the 55-storey tower sold at auction for just $235m after BentleyForbes missed mortgage payments.
The purchase was part of a series of expensive acquisitions. Also in 2006, BentleyForbes paid $470m for Prudential Plaza, a Chicago complex with 41-storey and 64-storey towers that occupies a full city block. Later in the year, the company bought the Four Seasons resort in Irving, Texas, for $210m, then spent $60m on upgrades.
The firm had planned even more purchases.
"We think we'll do $2bn next year, that's our goal," Wehba said in an October 2006 interview.
The cracks emerged as USF property prices plunged. One of the first BentleyForbes buildings to run into trouble was the Watergate complex in Washington DC, purchased in 2005 for $86.5m. The 11-storey complex - made famous by the political scandal that brought down President Richard M. Nixon -- was pulled from the market in May 2008 after failing to attract a high enough offer.
Still, just a few months later, BentleyForbes - managed at the time by David Cobb, president and chief executive officer, and Chief Operating Officer Bert Dezzutti, along with Wehba and his son, co-founder C. Frederick Wehba II -- announced an ambitious five-year growth program, with plans to expand its portfolio to $12bn by 2014 from $3bn at the time.
It wasn't meant to be. In March 2009, BentleyForbes put the Watergate back on the market, but turned it over to partner Capri Capital Partners the following year. By November 2009, BentleyForbes was behind on payments on the Texas Four Seasons, which eventually was sent to special servicing, then sold in 2014. Prudential Plaza faced a similar fate, with a loan on that property being transferred to a special servicer in October 2012. BentleyForbes still has a minority stake in the property.
The firm's chief partner for its boom-era purchases was Capri, which invested in the Watergate, the Four Seasons resort and office buildings in Dallas, and ended up suing BentleyForbes over some of the ventures.
BentleyForbes is down to overseeing just $200m in assets and employs only an asset manager and two assistants, after once having 102 workers. The elder Wehba, who plans to devote his time to the Wehba Foundation, a charity supporting Christian, educational and humanitarian initiatives, pegs total BentleyForbes losses at $170m.
The biggest mistake BentleyForbes made was expanding from small, single-occupant buildings to large, multitenant office properties, Wehba said.
"We ran a very stable portfolio of assets that returned at a predictable rate through the ups and downs of the market cycles," he said. Adding multitenant buildings "seemed like a logical path at the time, but it became too much to sustain in the face of the collapsing financial markets that derailed our IPO and our ability to operate assets in the recession that followed." (Bloomberg)