The El Paso movers and shakers operating the Borderplex Realty Trust, a major Downtown El Paso property owner, have kept the trust’s property portfolio and finances away from public view in its nine years of existence.
But the Borderplex real estate investment trust, or REIT, opened its private door this month when it provided many previously undisclosed details of its operations and finances in a document filed as part of its court battle with high-powered New Mexico entrepreneur Dan Burrell over a failed $20 million investment deal.
The trust, made up of about 200 shareholders, including several who are in El Paso and Texas business halls of fame, began operating in 2007 to buy Downtown El Paso properties for redevelopment. It originally was named the Borderplex Community Trust.
Two years ago, it shifted to a new investment strategy of developing and buying apartment complexes in several Southwest cities, including El Paso.
That strategy has been stalled by the fight with Burrell, of Santa Fe, founder and board chairman of the privately funded Burrell College of Osteopathic Medicine at New Mexico State University in Las Cruces, and owner of an array of companies in various sectors.
He’s accused the trust of fraud in a federal lawsuit stemming from his cancelation of an agreement to buy $20 million worth of trust shares. That money was to help fund several proposed apartment projects in the trust’s proposed joint venture with Encore Enterprises, a Dallas development company.
The trust denied the fraud claim, and in a recent court filing, included the 174-page Private Placement Memorandum, or private prospectus, for its $40 million private stock offering initiated late last year, as its proof that nothing was hidden from Burrell. That document provides previously private details about the trust.
The trust had assets of $82.4 million as of Sept. 30, 2015, including $65 million worth of real estate holdings, according to its stock offering memo.
The trust’s main assets are still in Downtown El Paso: The 21-story Wells Fargo building, 18-story Chase Tower, 13 retail properties, a parking lot at Mesa and Main, across from San Jacinto Plaza, where the Coffee Box is located, and a vacant lot at Mesa and Mills, where the trust had several buildings demolished in 2013 for a project that never materialized.
It also owns the 176-unit San Isidro apartment complex in Santa Fe that it bought last year for $20 million to launch its new multi-family investment strategy, and an adjacent four acres it bought for $1.3 million for future expansion of the complex.
While the trust has shifted to the apartment business, it also planned to continue to operate its Downtown El Paso properties, according to the offering memo.
Its biggest shareholders at the end of last year were Western Refining founder and CEO Paul Foster, who along with his wife and one of his investment companies, owned 9.5 percent of the trust’s common shares; Jack Cardwell, trust board chairman and former Petro truck stop owner, owned 4.1 percent, including shares owned by his son and one of his companies; Mexico businessman Luis Fernandez owned 3.1 percent, including shares owned by one of his companies.
William “Bill” Sanders, a real estate and banking mogul who helped found the trust, owned 1.7 percent; and El Paso land developer Scott Schwartz also owned 1.7 percent, including shares owned by his development company.
Another big trust investor is Christopher Cole, who in 2014 sold his Phoenix-based real estate company, Cole Real Estate Investments, for billions of dollars to what is now Vereit Inc., a large, publicly traded real estate company, also based in Phoenix.
Cole’s Main Strategic Investments own 1.9 million units in the Borderplex trust’s operating partnership, or almost 38 percent of the partnership’s units, which are similar to stock shares.
Those units were valued by the trust at $15 million, or $7.75 per unit, in the first quarter of 2015 when Cole exchanged 1.65 million shares of Vereit stock, then valued at $15 million, for the trust units, the trust reported. The Vereit shares last week were valued at almost $17 million, or around $10.30 per share, on the New York Stock Exchange.
In 2008, the trust reorganized its legal structure and formed an operating partnership, which owns and operates its holdings. The trust is the sole general partner of its partnership.
The Chase Tower and Wells Fargo buildings were the trust’s first acquisitions. No sales prices were divulged, but the trust now owes $10 million on the Chase building, which the El Paso Central Appraisal District had valued at $12.5 million last year for tax purposes; and it owes $11.8 million on the Wells Fargo building, which had a tax appraisal of $11.3 million last year.
The trust refinanced the buildings’ loans in 2014 and 2015, which resulted in lower interest rates, and allowed it to get $3 million in cash, it reported. However, the refinanced loans were larger than the previous loans and the trust also had to pay $2.6 million in prepayment penalties for the refinancing.
The trust has spent $8.3 million for improvements at the office buildings in the last several years, and plans to spend another $7.3 million over the next five years for additional improvements, it reported.
The trust had modest profits in 2012 and 2013, but lost more than $1 million in each of the last two years, largely due to costs for refinancing the office buildings’ loans, it reported in the offering memo.
Most of its revenues, totaling $9.5 million in 2014, the last full year reported, came from rents from the office towers.
The Chase Tower was 81 percent occupied last fall, and had base rents averaging $15.50 per square foot. Wells Fargo was 88.2 percent occupied last fall and had base rents averaging $14.13 per square foot.
It’s 13 Downtown retail properties were almost 73 percent occupied last fall, and had average rents of $8.90 per square foot.
The offering memo also revealed details about the trust’s 2014 sale of the 15-story historic Bassett Tower to a group headed by El Paso businessman Lane Gaddy, who is redeveloping several Downtown properties. The trust, which valued the vacant office building at $1.6 million in its financial reports, exchanged it for 150,000 operating partnership units held by what it termed as partners in the trust. Those units were valued by the trust late last year at $1.2 million, or $7.75 per unit.
An unidentified investor in 2013, paid more than $1.1 million for shares from 11 selling shareholders in a private auction. That’s how the trust came up with the $7.75 per share price in its 2015 offering, it reported. That’s also the price it valued its operating partnership units.
The trust paid $856,000 in dividends to its shareholders, or 30 cents per share, annually in recent years, it reported.
Borderplex trust officials are not commenting on matters tied to its 2015 stock offering or future plans while litigation is pending, Jamie Gallagher, trust senior vice president, reported in an email.
In a May letter to shareholders informing them of the trust’s failed initial housing venture, trust Chairman Jack Cardwell said the board authorized the trust to buy back shares at the $7.75 per share offering price from people who bought them in the 2015 offering, and had met their purchase obligations. The refunds were authorized because the offering was tied to the canceled housing venture with the Dallas developer.
In the letter, Cardwell promised shareholders that the board would hold a shareholders meeting this year to provide information on a revised investment strategy. Gallagher said a shareholders meeting will be held in mid-September to “provide shareholders with information about (the trust’s) current status.”
Vic Kolenc may be reached at email@example.com; 546-6421; @vickolenc on Twitter.
Members of the Borderplex Realty Trust, as of October 2015:
- Jack Cardwell: Board chairman who sold his Petro Stopping Centers truck stops several years ago for millions of dollars.
- William “Bill” Sanders: Trust co-founder, board chairman of Strategic Growth Bank, a bank holding company he founded. It owns Capital Bank in El Paso and other regional banks.
- Scott Schwartz: El Paso land developer.
- W. David Bernard: President and chairman of ScottHulse law firm in El Paso.
- Myriam de la Vega: Executive for Grupo de la Vega business operations in Juarez.
- Luis Fernandez: Mexican business operator.
- James Potts: Trust chief investment officer.
- Jeffrey Perea-Branch: New Mexico real estate developer and entrepreneur.
Source: Borderplex Realty Trust Private Placement Memorandum