Chevron Land Portfolio

In 1996, Kearny Real Estate Company, along with Morgan Stanley Real Estate Fund II, LP. (“MSREF”) purchased most of the assets of Chevron Land & Development Company. Chevron’s decision to sell its portfolio in bulk created an opportunity to purchase the assets at wholesale pricing.

The commercial land portfolio was acquired at a substantial discount to replacement cost and generally encompassed land that was fully entitled and located in markets which had a strong history of growth and consistent demand for finished land parcels. Over 70% of the land portfolio was well located infill locations within major metropolitan areas such as San Diego and Orange County. Many of these sites would have been developed years ago were it not for Chevron’s oil operations and their lack of emphasis on developing the properties in a timely manner in accordance with strong market conditions.

Kearny financed the acquisition with 75% debt on the income producing portfolio and no debt on the land portfolio.The income producing portfolio was purchased substantially below replacement cost. Future NOI was expected to increase as the portfolio occupancy increased and market rates were buoyed by the recovery of the local economy.

Kearny/MSREF significantly exceeded their underwriting returns for the portfolio. This was achieved by proactive leasing and sale of the income producing assets and development and sale of the land assets. For the land assets, Kearny developed over 60% of the portfolio as either residential or commercial. The residential development was completed through a partnership with Shea Homes, and Kearny implemented the office and industrial development program in-house.

Chevron had previous oil operations on many of the sites. As a result, Kearny negotiated the purchase and sale contract so that Chevron indemnified Kearny and agreed to clean-up properties which were currently known to contain hazardous materials. Additionally, Chevron indemnified Kearny and future owners for groundwater contamination for all properties which had previous oil operations.