Behringer Harvard Holdings LLC, the real estate investment firm, last week dropped a bomb on its clients: One of its funds for wealthy, accredited investors is underwater.
Launched in 2005, the Behringer Harvard Strategic Opportunity Fund I raised $65 million and invested in six properties, including a hotel on Wilshire Boulevard in Los Angeles and an office building in Amsterdam.
A related fund, Strategic Opportunity Fund II, raised $62 million over a similar period.
Like so many mortgages signed at the top of the real estate market in 2006 or 2007, the fund is underwater. Its debt far outweighs its equity.
"SWING ISSUE'
The Strategic Opportunity Fund I's “liabilities are greater than its assets,” said Michael O'Hanlon, chief executive of the funds comprising Behringer Harvard's opportunity platform. The fund is negotiating with banks over the hotel in Los Angeles, which he called a “swing issue.”
Behringer Harvard informed brokers of the fund's problems and informed investors Friday.
“The acquisition period was 2005 to 2007, and assets were bought in a dramatically different economy than now,” Mr. O'Hanlon said. He noted that Behringer Harvard put $47.2 million back into the two funds through loans, deferred fees and other items. It did take out $8 million in fees from the first fund.
It has been a difficult year for Behringer Harvard and its investors.
Behringer Harvard Opportunity REIT I's estimated value fell to $4.12 a share at the end of 2011, from $7.66 a year earlier, a 46% decline. In June, one property in that REIT went into bankruptcy protection.
Also as of Dec. 31, investors in the Behringer Harvard Short-Term Opportunity Fund I LLP, which had about $130 million in total assets, saw its valuation drop to 40 cents a share, from $6.48 a share a year earlier.
According to the company's website, the programs sponsored and managed by the Behringer Harvard group of companies have attracted more than $5 billion in equity, which has been invested into more than $11 billion in assets.
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