It’s been a while since I wrote my first article on Gramercy Property Trust (NYSE:GPT). In fact, almost 2 ½ years have passed since that article in which I suggested that (Gramercy’s) experienced management team should be able to get this company back on the REIT track and start paying dividends again”.
For a quick refresher, Gramercy was once a high-flying mortgage REIT that originated and acquired whole loans, subordinate interests in whole loans, mezzanine loans and preferred equity interests in companies owning U.S. commercial real estate.
The company was then a major player in the commercial real estate collateralized debt obligation (CRE CDO) market until the credit slowdown sapped interest in these high-risk vehicles.
During the market peak (2009), Gramercy acquired a triple-net REIT by the name of American Financial Realty Trust (formerly AFR) for roughly $1.1 billion. The deal was meant to consolidate two niche REITs with individual exposure to both the debt and equity markets.
However, in 2009, the marriage between Gramercy and American Financial began to unravel, primarily due to the combined company’s significant leverage as well as the growing distressed loans originated by Gramercy’s legacy lending organization. After adding significant leverage to the failing multifaceted platform, lenders (Citigroup, Goldman Sachs, SL Green Realty, and LBS Debt Holdings) started closing in.
Analysts largely endorsed the merger suggesting that Gramercy would be able to diversify its business by acquiring more than 1,300 well-leased commercial properties – mostly leased to banks. Also, it was conceived that Gramercy would also eliminate a weaker-performing equity REIT while also stabilizing the riskier mortgage REIT platform.
American Financial (once led by Nicholas Schorsch) was a primary landlord to several of the nation’s largest banks, among them Bank of America (BOA) and Wachovia (now Wells Fargo). Gramercy had planned to structure the deal to flip roughly one-third of the bank portfolio, pay American Financial stock, and assume around $2.3 billion in debt.
