Real Estate Developer Gets $1.4B Cash Infusion

Goldman Sachs (GS), Abu Dhabi's ever-expanding investment arm and others have agreed to invest $1.4 billion into privately-held Related Cos., a deal that will allow it to continue investing despite today's less borrower-friendly climate. The deal, expected to be announced today, includes about $400 million from Goldman and Michael Dell's investment firm MSD Capital, giving them a 7.5% stake in Related. Abu Dhabi and Saudi company Olayan Group will invest about $1 billion, sources told the Wall Street Journal.

Related CEO Stephen Ross said the firm began seeking outside investors before the August credit squeeze that wrought havoc on mortgage-related securities. It "was so good we knew it wouldn't last," he said. "Deals are going to require a lot more equity going forward." Ross said the current capital infusion will allow his firm to diversify; it recently acquired the Equinox chain of fitness centers and a majority interest in retailer Virgin Megastores NA. Related was formed in the early 70s to build and develop government-subsidized housing, which it still does. It eventually expanded to developing high-end office and retail venues, including its crown jewel, the Time Warner Center. Together with Vornado Realty (VNO), it runs a $14 billion project in downtown NYC which involves building two train terminals and a new Madison Square Garden.

Additional Reading: Commercial Real Estate Faring Much Better Than Its Residential Sibling

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Comments

[Kunst]

Fitness centers are not where I would be investing in this environment. The industry is tremendously overbuilt. The number of gyms has nearly doubled in the last 5 years with very little increase in total membership. People can cut gym memberships out of their budget very easily, especially since half of all members aren't even going to their gym.

There will be a massive shakeout in the fitness industry over the next few years. I believe that half will go out of business in that time, both large and small.