Rendering of Miracle Marketplace, opening in late 2008.

Wien & Malkin's Strategic Capital (SC) program has consistently fulfilled its mandate: producing superior current returns to our investors through risk-adjusted investments in the capital structure of real estate entrepreneurs. Our successful returns, which do not benefit from additional leverage, derive from our strict underwriting standards and well defined selection criteria. We use our extensive experience to seek out the projects of sponsors whose deals meet the criteria and objectives we've set for our partnerships.

But there's more to it. First and foremost, Strategic Capital investments are identified and structured by W&M Properties based on the value and prospects of the underlying real estate. Secondly, our investment structures contain safeguards to protect our investment if a difficulty is encountered. Finally, Wien & Malkin has a team of professionals who interact regularly with the operators with whom we place investments. They monitor investment performance and have the operating and legal background to deploy those safeguards.

Wien & Malkin's ongoing interaction with a Florida shopping center redevelopment illustrates how valuable that extra protection can be, not only for Wien & Malkin investors but, as it turned out in this case, for everyone in the deal. In 2006, SC IV closed on an $11 million preferred-equity investment to complete the capital structure for redevelopment of a poorly executed multi-level retail center occupying a valuable location in the famed "Miracle Mile" corridor linking Miami and fashionable Coral Cables, near the popular Coconut Grove district. Its sponsor is a successful redeveloper of retail property.

With upgrading and repositioning in the local market, the 246,000-square-foot center--which is being renamed Miracle MarketPlace--offers substantial upside. Based on the sponsor's plans, the center was about 90% pre-leased, mostly with high-credit national retailers, including Marshall's, Bed Bath & Beyond, Office Max, PetSmart and Michaels Crafts, before the opportunity was sourced for Strategic Capital by W&M Properties.

W&M Properties structured a short-term investment for SC IV that returned a current yield of 8% annually in the initial two years, and 10% in years three and four if the sponsor opted for an extension. The partnership receives an additional sum upon repayment that raises the annual compounded rate of return to 15.75%. The creative plan was to execute the redevelopment with one in-place tenant, a Bally's Total Fitness Center, remaining open during the renovation. As it turned out, local building inspectors and unanticipated requirements of Bally's operational presence caused construction difficulties and cost overruns. This delayed the property's scheduled completion and caused it to miss required delivery dates for the leases already signed.

W&M Properties knew that the project offered many unknowns and challenges to execution. But the risks were balanced by the strengths, which gave W&M confidence that the investment would be sound for SC. The sponsor had experience with difficult construction and leasing challenges. The location was irreplaceable. The construction lender and W&M worked closely on plan and progress review. Finally, the value to be created allowed for significant overruns while protecting SC's investment and return.

Early this year, W&M worked with the sponsor and the construction lender to get the project back on track. Because the SC documents anticipated potential difficulties, Wien & Malkin was able to step in and enforce corrective provisions. The sponsor demonstrated the financial resources and resolve identified by W&M in its due diligence by funding construction shortfalls and working with tenants to extend delivery dates. Wien & Malkin team members were actively involved in the process with site visits, interaction with the construction lender, and financial review

To compensate for the delay, W&M's rate of return on the SC IV investment was raised to 21% per annum for the period February through April, until the project and its leases were back on track by May 1.

Miracle MarketPlace is now scheduled for a grand reopening later this year.

"We cannot anticipate every potential obstacle, so we structure SC deals in ways that allow us to bring our long experience to bear on any problem that affects our investment, and we only deal with quality sponsors who stand up to our vigorous due diligence," says W&M Senior Vice President Vincent Sultana, who is asset manager for the SC program. He adds:

"A major difference between us and typical mezzanine lenders is that our main business is underwriting and operating real estate, which the Malkin family has been doing for some 75 years. We have the ability to step in and take over. If we don't think we can operate a property for SC, if that became necessary, we won't invest in it."

In the case of Miracle MarketPlace, says Mr. Sultana, the hard work and judgment of our investment and legal experts played a big role in avoiding a problem while bringing an enhanced yield to Wien & Malkin investors.