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F2 Sunday, February 11,1996
Richmond Times-Dispatch
RF&P just sits, and sits, and sits, waiting for a bid
It s been 10 months since the Virginia Retirement System received unsolicited offers for RF&P Corp., and eight since the railroad-turned-real estate company was put on the block.
And there it sits, and sits, and sits.
RF&P, the pension fund's most controversial asset, hasn't been scorned by potential suitors. But the possible sale apparently has been slowed by such complications as the company's long-standing relationship with a giant Washington developer, Charles E. Smith Cos.
Smith, not surprisingly, has been mentioned as a prospective buyer. The company's crown jewel, the Crystal City office-residential complex, sits atop RF&P tracts in Arlington. Lucrative land leases provide a steady flow of cash to RF&P.
Threatened Tenant Loss
Despite the threatened loss of such major tenants at Crystal City as the Navy and Patent Office, the Smith-RF&P arrangement is worth $220 million to RF&P-about a third of its book value. Thus, any discussions about the purchase of RF&P can't take place unless Smith is at the table.
"They are our partner," says Edwin T. Burton, III, the VRS trustee who is overseeing the possible sale of RF&P, which was taken over by the $20.1 billion retirement fund four years ago.
It's no wonder then that other interested parties might conclude they're getting the brush off from VRS. SFRE, an Alexandria development and leasing company, reportedly has complained it's not received full consideration from VRS and its investment adviser, Lehman Bros.
The buzz: FIX isn't in
But the buzz is that the fix isn't in for Smith that the company hasn't even formally pitched for RF&P. Besides, VRS is said to have questions about Smith's financial backers.
Still, Smith-publicly silent on its plans- might regard ownership of the land beneath Crystal City as a logical step toward the development of the adjacent Potomac Yard, RF&P's best-known holding and one of last large chunks of raw land inside the Capital Beltway.
The to-ing and fro-in" over offers for RF&P spotlights important sub-themes: the possibility that VRS, which vows not to dump RF&P at a fire-sale price, may be forced to keep the company, and that other steps might be taken to divert company profits to the pension system.
Because RF&P is a stand-alone subsidiary of VRS, the firm pretty much keeps what it makes. And because it's a development company, RF&P needs to husband its cash, even for interim steps at Potomac Yard, such as a Metro subway station and warehouses.
Still, Erwin H. Will Jr., VRS investment director, makes no secret of the fact that the $548 million VRS spent on RF&P-in the middle of a real estate recession, to boot-would be worth a lot more had the money gone into the stock market. Look no further than the S&P 500: it jumped 37 percent last year alone.
To lighten the company's tax liability-and increase its potential as a cash source to the retirement fund-RF&P was converted to a real estate investment trust. The REIT might even become an umbrella for other VRS properties in Virginia and beyond.
But back to the possible sale of RF&P: It's clear that the majority of VRS trustees want to get rid of it. The company has generated more political, legal and managerial problems than profits for a pension system facing spiraling costs. Finding the right buyer, however, is another headache altogether.
All VRS can do is just sit, and sit, and sit.
Jeff Schapiro covers state government and state employee issues for The Times-Dispatch.
Write him at Box 85333, Richmond 23293 or send email to "tdcity@prodigy.com"