Wall Street Journal
COMMERCIAL REAL ESTATE
AUGUST 19, 2009

Tishman Faces Office Downturn
Portfolio in Washington in Default; If No Risks, 'Don't Have Any Rewards'

By LINGLING WEI
A partnership led by Tishman Speyer Properties is in default on debt tied to one of the largest office portfolios in the Washington area, the latest in a line of humbling turns for the prominent property developer.

Tishman Speyer paid $2.8 billion in late 2006 for what was known as the CarrAmerica portfolio, a collection of 28 buildings leased to law firms, lobbyists and other upscale tenants in and around Washington. But in taking advantage of the easy credit terms of the time, Tishman ended up overpaying.

View Full Image

Bloomberg News

FAMILY AFFAIR: Tishman Co-CEOs Rob Speyer, right, and his father Jerry Speyer at a news conference in New York last year.
With office vacancies rising and rents falling, the partnership has violated lender's covenants. Tishman also must find a way to refinance the debt when it comes due in 2011, something that analysts say could be a struggle.

Tishman Speyer itself isn't threatened by the problems.

Despite its size, CarrAmerica is one of the lesser-known investments in the Tishman Speyer empire, which includes Manhattan's Rockefeller Center and the Chrysler Building. In addition to the CarrAmerica deal, it also is facing stress from its other top-of-the-market acquisitions including Archstone-Smith, a high-end apartment real-estate investment trust, and the sprawling New York apartment complexes of Peter Cooper Village and Stuyvesant Town.

It is proving a test of the business mettle of Rob Speyer, a 39-year old former newspaper reporter. The son of Jerry Speyer -- former chairman of the board of the Federal Reserve Bank of New York and chairman of the Museum of Modern Art -- is being groomed to take over Tishman Speyer, a closely held 31-year-old firm that owns or manages real estate valued at over $35 billion from Brazil to Germany to China.

Like other deals done in the boom years, the CarrAmerica transaction was underwritten on the assumption that rents and occupancy would rise, not fall. Now, according to people familiar with the matter, the Tishman partnership has violated covenants on $200 million in its revolving credit line because the properties' cash flow barely covers debt service.

'A Good Track Record'
"We have a handful of tough deals that we made at the top of the market," Rob Speyer said. But the company has "a good track record we're proud to stand behind," said Mr. Speyer, who spoke from São Paolo, Brazil, where he was visiting the firm's projects and scouting for new opportunities.