Charlotte-based Crescent Communities, one of the city's oldest and most prominent developers, said Friday that it's reached an agreement to be acquired by Sumitomo Forestry America, a subsidiary of a Japanese firm.
The deal will allow Crescent to increase its reach and eliminate its debt by bringing on a deep-pocketed new owner, while Sumitomo gains entry into the Southeast's booming apartment and office markets, executives said. Crescent started construction on almost 2,200 new apartments in 2017, which Sumitomo will now own.
The company's current management team will continue in their roles and be based in Charlotte. Palmetto Bluff, a 20,000-acre resort in South Carolina, will be split off and retained by Crescent's current owners.
"We end up with a new long-term owner that has very deep real estate experience," Crescent CEO Todd Mansfield told the Observer.
Crescent — a former Duke Energy subsidiary that dates to the 1960s — is the developer behind huge projects such as the 26-story Ally Center at Stonewall and Tryon streets, the 1,400-acre River District west of Charlotte's airport, Novel Stonewall Station, with a Whole Foods and apartments uptown, as well as luxury single-family communities such as the Sanctuary on Lake Wylie and the Peninsula on Lake Norman.
The companies did not disclose the full cost of the deal, but did provide some details. According to an investor disclosure from Sumitomo, the company is spending $370 million on the Crescent acquisition. Mansfield said they are also paying off Crescent's $380 million worth of outstanding corporate debt, plus assuming all of the company's unspecified outstanding debts on their development projects. "It was a very healthy premium to our book value," Mansfield said.
Crescent is largely owned by private equity firms including MatlinPatterson and Anchorage Capital Group. The deal is expected to close in the second quarter.
Sumitomo Forestry is a wood products company and homebuilder that is a major producer and importer of timber. The company owns five homebuilding companies in the U.S., such as Dan Ryan Homes, and is also a promoter of wood-framed construction, which is how most of Crescent's apartments are built.
Crescent — which has more than $1.1 billion worth of assets under management and a development portfolio worth nearly $2 billion across the Southeast — has been in negotiations with Sumitomo for about six months, Mansfield said. The deal was inked in Japan at around midnight Friday.
"It's been a long courtship," said Mansfield. Sumitomo and Crescent started testing the waters in 2017, when they joined in a $37 million joint venture to develop upscale apartments at Atherton Mills. "It was a perfect opportunity to get to know them."
Mansfield said the new owners will be able to help Crescent design and build more innovative projects.
"I hope we learn from the Japanese," he said. "They are masters of mixed-use development."
Decades of Charlotte growth
For Crescent, which employs about 200 people, Charlotte roots go deep. The company started out in 1963 as a timber and real estate management company for Duke Energy’s landholdings, known as Crescent Resources. The company became completely independent from Duke in 2006. The Charlotte and Japanese firms share similar origins, Mansfield said.
"They are a forestry company, we began as a forestry company," said Mansfield. "That's the birth of Crescent."
Known for its luxury waterfront communities such as The Sanctuary on Lake Wylie and The Point in Mooresville, Crescent filed for bankruptcy in 2009, hobbled by falling real estate prices and debt.
The company emerged in 2010 and re-branded itself as Crescent Communities, with an increased focus on apartment and mixed-use development. In 2016, Crescent started a homebuilding subsidiary, Fielding Homes, to pursue more single-family development.
“Crescent Communities has successfully established itself as an integrated platform of diverse real estate assets with a significant development pipeline that provides a long runway for future growth,” said Atsushi Iwasaki, president of Sumitomo Forestry America, in a statement. The Japanese company saw about $10.2 billion in revenue in fiscal 2017, with almost $500 million profit.
“We have been pursuing further expansion of our U.S. real estate business and the acquisition of Crescent Communities is a perfect fit with our investment philosophy," he said.
Sumitomo's acquisition includes all of Crescent's current assets aside from the resort at Palmetto Bluff, totaling 6,400 apartments in 20 communities, 1,700 single-family lots and 1.5 million square feet of commercial square feet. Sumitomo is also buying Crescent's slate of future projects in development, totaling 5,500 apartments, 2,200 houses, and 2.5 million square feet of office and industrial space.
Moelis & Company served as the exclusive financial adviser to Crescent Communities, and Paul, Weiss, Rifkind, Wharton & Garrison LLP served as legal adviser. Vinson & Elkins served as legal adviser to Sumitomo.
Crescent's Charlotte projects
▪ Ally Center: A 26-story office building to be anchored by lender Ally Financial, under construction at Stonewall and Tryon streets. The plans also include ground-floor shops and restaurants, along with a 350-room hotel in an adjoining building. Opening in 2021.
▪ Novel Stonewall Station: A Whole Foods and 459 apartments, developed next to the Stonewall Station light rail stop. Two hotels totaling 362 rooms are under development on the adjacent site.
▪ River District: In partnership with Lincoln Harris, the River District is the biggest new development planned in Charlotte, on forested land between Charlotte Douglas International Airport and the Catawba River. The plans call for more than 5,000 apartments and houses, 8 million square feet of office space, 500,000 square feet of shops and restaurants and 1,000 hotel rooms on the site.
▪ Atherton Mill: Crescent is building 346 new, luxury apartments at the former mill on South Boulevard, along with more space for shops and restaurants.
▪ NoDa: At the 36th Street Station on the Blue Line, Crescent recently completed 344 new apartments and a huge mural along the parking deck.