THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, August 16, 1996 TAG: 9608160531
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 61 lines
RF&P Corp., the Virginia Retirement System's real estate subsidiary, has embarked on a plan for spinning off much of its commercial real estate through a public stock offering.
RF&P said it reached a preliminary agreement to put its Crystal City office complex in Arlington and other properties into a partnership with the real estate management concern Charles E. Smith Cos.
The two companies expect to eventually form a real estate investment trust and offer shares in the trust to the public, RF&P said.
The creation of a real estate investment trust, or REIT, would enable the Virginia Retirment System to recover part of its $548 investment in RF&P.
Much like a mutual fund, a real estate investment trust manages a portfolio of varied investments for several shareholders, who can buy and sell shares in the trust.
The properties that RF&P agreed to put into the partnership account for about 55 percent of RF&P's assets, or slightly more than $300 million, said Erwin H. Will Jr., the retirement system's chief financial officer.
Before it was acquired by the retirement system in 1991, RF&P operated a railroad between Richmond and Alexandria in addition to owning significant amounts of real estate in Northern Virginia and Richmond. Once it became part of the retirement system, RF&P sold its rail-related assets but held onto the real estate, including the Crystal City office complex and a vacant rail yard adjacent to Washington National Airport.
Even before it was acquired, RF&P had been at the center of bitter political squabbles and intense scrutiny by state legislators. Its 340-acre rail yard attracted attention in 1992 when then Gov. L. Douglas Wilder proposed that a stadium for the Washington Redskins football team be built on the site.
When the retirement system's board of trustees received four unsolicited offers to buy RF&P last year, it hired the investment banking firm Lehman Brothers Inc. for advice.
The decision to team up with Charles E. Smith and create a real estate investment trust evolved from the discussions with Lehman Brothers, Will said.
Creating a partnership with Charles E. Smith and then a REIT made sense, Will said, because RF&P had longstanding ties with Arlington-based Smith.
The two companies jointly own about five million square feet of office space in the Crystal City complex.
Their agreement calls for RF&P and Charles E. Smith to put their jointly owned properties and certain other office buildings in Northern Virginia and Richmond into the new partnership.
Will said the partnership will not include the vacant rail yard, which RF&P has been trying to sell. Office-building rents in Northern Virginia have firmed, but RF&P has not yet gotten any serious offers for the tract, he said.
That's largely because of the time and money that any project on that site will require.
``It will take a very substantial amount of capital to develop the roads, highways, power lines and sewers,'' Will said. ILLUSTRATION: [Color Photo]
RF&P's Crystal City office complex in Arlington is among the
properties being spun off. by CNB