The Wall Street Journal-20080130-Real-Estate Finance- Centro Pressed by Challenges- Property Giant Now Relies On Architect of Costly Deal To Pull Firm From the Fire

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Real-Estate Finance: Centro Pressed by Challenges; Property Giant Now Relies On Architect of Costly Deal To Pull Firm From the Fire

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When the chief executive of Centro Properties Group stepped down under fire this month, the Australian retail-property giant made an ironic replacement: the man who helped put the company in its current bind by selling Centro his U.S. company at a sky-high price.

Glenn Rufrano was CEO of New York-based New Plan Excel Realty Trust when Centro bought it for a hefty $3.7 billion early last year. After the deal, Mr. Rufrano stayed with Centro as its top U.S. executive. He moved to the top job when liquidity problems caused by the debt Centro took on in the New Plan deal forced his predecessor, Andrew Scott, to resign.

Mr. Rufrano, a 58-year-old industry veteran and avid scuba diver, has a reputation as an expert in structuring financing and cultivating allies. He is best known for transforming New Plan Excel from an unfocused real-estate investment trust with a collection of scattered assets to the healthier retail REIT that Centro acquired for top dollar.

But with Melbourne-based Centro, Mr. Rufrano inherits a multibillion-dollar puzzle far more complicated than anything he has confronted. Since 1997, his predecessor built Centro from a little- known company to the second-largest retail landlord in Australia and the fifth-largest in the U.S., mostly by championing a complicated capital structure involving high debt and interlocking investment funds. But the approach backfired after Centro failed to draw investors quickly enough last year to support its ambitious purchase of New Plan Excel. With Centro unable to refinance the $3.4 billion in short-term loans from the deal amid the credit crunch, the company's lenders have granted it until Feb. 15 to produce a plan for solving its liquidity woes.

Mr. Rufrano got a sense of the stakes upon arriving in Melbourne shortly after his promotion. Relatively anonymous in the U.S., he was greeted by news photographers at Melbourne Airport and on his way into the office the next day. After his first week assessing Centro's condition, Mr. Rufrano said the capital Centro needs will come from selling convertible bonds or equity in two of its large property funds, rather than selling properties. Some analysts say that selling equity seems unlikely to get Centro out of its hole, given that Centro's shares trade well below $1 a share on the Australian Securities Exchange.

"The challenge looks far greater" than New Plan Excel's turnaround, Mr. Rufrano said in an interview. "But . . . many of the investors we had in New Plan are the same investors we have in Centro. Many of the capital sources we have in the United States are the same in Australia."

Slight and calm, Mr. Rufrano knows numerous lenders and institutional investors in the U.S. that may come in handy. He spent 17 years at the real-estate investment firm he co-founded, The O'Connor Group, before joining New Plan Excel in 2000.

"Glenn is a talented and well-respected real-estate guy. Therefore, he's the guy who has credibility as they push through the process," said Jim Sullivan, an analyst with Green Street Advisors, a Newport Beach, Calif.-based real-estate research firm. "If it's going to be enough or too late is really in the hands of the lenders at this point."

What Mr. Rufrano needs more than anything now is time. If he doesn't persuade Centro's lenders to extend their Feb. 15 deadline, the company may have to seek bankruptcy protection before he is able to raise the capital needed to pay off the short-term debt.

But it is not clear that his approach will work. At a press conference with the Australian media last week he said his talks with lenders were "positive" and that they would likely grant an extension if they believe Centro is "open, honest, transparent [and] . . . the best custodians of their collateral." But lenders so far have been quiet about how the talks are going.

Mr. Rufrano has driven many a hard bargain. After taking over at New Plan Excel in 2000 he sold its apartment and factory-outlet holdings, unwound all but one of the many joint ventures absorbed in its 1998 merger with Excel Realty Trust and spent $3.2 billion on retail acquisitions.

In early 2007, after Mr. Rufrano attracted Centro's $3.7 billion bid for New Plan, some of the strongest U.S. retail REITs didn't bother to make competing offers. Green Street's Mr. Sullivan deemed the amount "stunningly high" for a portfolio with below-average base rent and subpar growth in net operating income. Centro representatives have claimed the price was fair especially given New Plan's advanced system for leasing, managing and developing properties.

"I think that's part of the reason [Mr. Rufrano] sold the company; He saw that he wasn't able to get the valuation in the public markets that the company deserved," said Lisa Kaufman, a managing director at LaSalle Investment Management in Baltimore who monitored New Plan Excel. "I think he saw a way to get it in the private markets and keep the company intact."

With Mr. Rufrano now deciphering Centro, little time remains for outside pursuits. His grown son and daughter have run half-marathons and scuba dived with him over the years while his wife snorkels. "Frankly, the Holy Grail would be all of us getting to the Great Barrier Reef," he says.