With its current cash squeeze and impending asset sales, Chesapeake Energy Corporation (NYSE:CHK) $805 million investment in Oklahoma City’s land and buildings could cause a market collapse.
According to Bloomberg, the company, which is the second biggest natural gas producer and Oklahoma City’s second-largest private employer, has spent $448.7 in Oklahoma City to build a 120-acre (50-hectare) headquarters campus in its northwestern section with an additional $356.7 to develop three retail centers at cost of $67 million in the second half of 2011.
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This transaction represented 75 percent of Oklahoma City’s total transactions in that real estate area.
In addition, Chesapeake is buying office buildings and additional land said Peter Brzycki, a former Oklahoma City real estate broker who keeps his eye on the company’s properties.
Cheapeake’s commercial property sales may make its investors happy as it sees prices fall but a quick sell-off could depress Oklahoma City’s office market, according to local real estate professionals. The company is trying to sell $14 billion of assets this year to raise money.
Don Karchmer, a local developer and investor said via Bloomberg, “If something were to happen to Chesapeake, the whole northwestern market would collapse. The whole community has a fear of what could happen. It would be a huge hurt.”
But the sales in Oklahoma City properties don’t fall under Chesapeake’s divestiture program, said corporate spokesman Michael Kehs.
He said, “We use our real estate every day, so it’s not for sale.” In addition, he noted that Brzycki’s spending total for Chesapeake’s campus was low while the real-estate development numbers were high.
Chesapeake’s real estate holdings include shopping centers and land; a restaurant co-owned by McClendon operates on it, reported Bloomberg.
Investors, including billionaire Carl Icahn, have requested the company sell assets not vital to its energy production business.
David Dreman, chairman of Dreman Value Management Inc. and a one million-shareholder of Chesapeake said to Bloomberg,”You’ve got a cash crunch, and you’re not a real estate developer. If I had a cash crunch and I had really good wells and very promising property, I don’t think I’d be in the restaurant business.”
Chesapeake has tried to cushion the blow from the recession and ensuing weak recovery for Oklahoma City. It stands at the top for recovery of vacancy rates for the city’s top office space to “near pre-recession levels,” according to a report by broker Cushman & Wakefield Inc.
The company faces tough times with a cash shortfall estimated at $18.6 billion by the end of 2013, according to Alembic Global Advisors. Chesapeake lost approximately $7 billion in market value within the past year as energy prices dropped and shareholder unrest about McClendon’s personal holdings and debts increased.
In June, the board replaced McClendon and named four new board of directors.