$285M ARCap Buy Reflects New Course for CharterMac

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NEW YORK CITY-CharterMac will acquire 100% of the ownership interests of the Dallas-based ARCap Investors LLC in a transaction valued at $284.5 million. The privately held, Dallas-based company manages a portfolio of over $2.8 billion of CMBS. CharterMac has owned a 10.7% economic interest in ARCap since 2000.

“This is truly a milestone for CharterMac,” said Marc D. Schnitzer, CEO and president, during a conference call. “Our goal is to be the pre-eminent real estate fund manager and this moves us in that direction and will accelerate the transformation.” He said this is a logical expansion of the firm’s fund management platform into a new area of real estate finance with significant growth potential.

“As we go on we’re less susceptible to changes in the high yield curve,” Schnitzer continued. “We believe commercial real estate will follow residential and become deeply rooted in capital markets. This positions us to capitalize as commercial real estate becomes enmeshed in capital markets.”

The firm also anticipates saving as much as $3 million in annual operating costs by 2007 as many operations for loan services will be relocated to Dallas. Part of those savings may come because CharterMac anticipates a net reduction of as many as 30 employees based here. “There will be a reduction in head count,” Schnitzer said, adding that those figures are preliminary. He said some employees would be offered transfers to Dallas and that they anticipate adding to the team there.

The acquisition was unanimously approved by both CharterMac’s board of trustees and ARCap’s board of managers. It’s expected to close in the third quarter. Following the completion of the acquisition, ARCap will become a subsidiary of CharterMac and will maintain its brand identity. ARCap’s existing management team will continue to oversee ARCap’s day-to-day operations.

To fund the transaction, CharterMac will enter into a $350-million, six-year term loan. The company will also enter into a separate $150-million revolving credit facility UBS Securities, LLC and Bank of America are jointly providing the term loan and the facility. UBS Securities LLC acted as financial advisor to CharterMac and Michael Zuppone, Mark Schonberger and Joseph Opich of Paul, Hastings, Janofsky & Walker LLP acted as legal counsel. Bear, Stearns & Co. Inc. acted as financial advisor to ARCap and Orrick, Herrington & Sutcliffe LLP acted as legal counsel.