NEW YORK - Pension funds are at the head of the line to become part owners of Rockefeller Center, but their position could be trumped if a bidding war breaks out for the office complex.
The pension funds' stake in Rockefeller Center would come through the Zell/Merrill Lynch Real Estate Opportunity L.P. III. That fund would contribute $30 million to a bid by real estate investor Sam Zell and The Walt Disney Co.
Pension funds invested in the Zell/Merrill fund include those of General Motors Corp. and The Southern Co., as well as the Public Employees' Retirement Association of Colorado and California's Contra Costa County Employees Retirement Association.
Mr. Zell and Disney signed a letter of intent to inject $250 million into the publicly traded real estate investment trust that holds the $1.3 billion mortgage on Rockefeller Center. The pension funds' $30 million from the Zell/Merrill fund would be part of that cash infusion.
The owners of the 12-building complex - a partnership of Mitsubishi Estates Co. and the Rockefeller family - filed for bankruptcy protection in May. Last month, the owners joined a New York developer to submit a rival plan to the lenders of the belly-up properties.
Despite the high-profile nature of the deal, the pension fund investors seem unruffled by their involvement, and confident in Mr. Zell. They pointed out the Zell/Merrill fund has full investment discretion.
"Contra Costa County has been successful with their investment with (Mr.) Zell, and he has done a good job identifying underpriced real estate," said Robert Helliesen, a consultant to Contra Costa.
Officials with Mr. Zell's company, Chicago-based Equity Institutional Investors Inc., declined to discuss the Rockefeller Center proposal in detail. "What we have been trying to do is buy high-quality, well-located, financially distressed assets," said Donald Phillips, chairman of Equity Institutional Investors. Rockefeller Center "works to all the objectives we've established."
According to the terms of the letter of intent, Zell-Disney would inject $10 million into the REIT for short-term cash needs; the group would then buy newly issued stock for about $20 million; and the balance of their money would be used to recapitalize the REIT into a new company owned by shareholders, Zell-Disney and Mr. Zell's investors.
But the pension funds' position is not assured.
The rival bid - submitted by Rockefeller Group Inc. and Tishman Speyer Chairman Jerry Speyer - would pay $975 million to the REIT and give it a 21% stake in a new company that would own Rockefeller Center. Most of the $975 million would go to pay the REIT's debts.