American Financial Realty Trust in Jenkintown, Pa., which specializes in properties occupied by banks, has agreed to sell itself for $3.4 billion to a New York real estate investment trust, Gramercy Capital Corp.
The deal would make Gramercy, which has focused on making commercial real estate loans, the largest landlord for financial institutions in the United States. On a conference call Monday, Gramercy’s chief executive, Marc Holliday, said it would become an active buyer of bank properties.
Gramercy has a significant amount of ready cash and sees “a sizable pipeline developing in this sector at prices and returns that have not been seen in 36 months,” Mr. Holliday said.
He also said Gramercy would market its services to American Financial clients. “We intend to introduce cross-selling — buying loans from, selling loans to, and co-originating,” he said.
Some analysts said Gramercy is getting American Financial Realty on the cheap.
On the conference call Lewis Ranieri, the chairman of American Financial, said it had been “evaluating alternatives” for the past 14 months and had to choose “whether to go it alone” or to carry out the second phase of a repositioning plan that “would take time to execute.”
Christopher Haley, an analyst at Wachovia Capital Markets LLC, asked whether the timing of the transaction was the reason American Financial was valued at a 15% to 30% discount to its net asset value.
Mr. Ranieri replied that the deal was “an extraordinary opportunity” during a “challenging time” in the credit markets and “a tremendous change in the banking market.”
“We did a tremendous amount of work looking at the alternatives and concluded this was the best thing we could do,” he said.
Gramercy would pay $5.50 in cash plus 0.12096 of its own shares for each share of American Financial, giving American Financial shareholders roughly 31% of Gramercy’s outstanding shares.
Mr. Holliday said analyst reports that valued American Financial at $11 to $14 a share “are not reflective of where things are today.” “We didn’t come near those numbers” when evaluating the deal, he said, adding that Gramercy was “not happy parting with the stock that Lew and his board insisted on.”
American Financial owns roughly 1,300 properties in 37 states and is the primary landlord for Bank of America Corp. and Wachovia Corp.
The deal is expected to close in the first quarter of next year. Gramercy is majority-owned and externally managed by another New York REIT, SL Green Realty Corp.
