A few mega-events over the last few weeks have knocked this one off our pages, but it's a major blip on the real estate radar that won't escape without a significant look:

The blip? It's finally a done deal in the merger of HQ Global Workplaces (www.hq.com), the executive office suites affiliate of CarrAmerica Realty Corp. (www.carramerica.com), with Vantas, the executive office suites subsidiary of FrontLine Capital Group (www.FrontLineCapital.com). The total value of the transaction is valued at US$1 billion.

We mentioned the first rumblings of this blockbuster hookup in an earlier Dispatch way back in January. With the deal's recent closing (which had been expected some two months earlier), however, we now know the massive particulars. And perhaps we know a little more about what the deal means.

As the waters rise, all boats rise, goes the enduring axiom. In this deal, different observers will see different winners rising. Perhaps most of all, though, the transaction seems to signal a watershed moment for the office suites sector, which is apparently rising on something more like a wave - particularly with business-to-business commerce now a potent part of the mix.

Funny, it really wasn't so many years ago when executive suites seemed to some the essence of beyond-the-fringe real estate thinking. However silly it seems now, back then, the notion of employees working in anything other than Our Space freaked out more than a few firms. In many ways, that thinking was a physical manifestation of archaic command-control management. Those opinions began to significantly change in the late 1980s, with much of the change driven by the International Development Research Council, which is now studying the particulars of merging with the International National Assn. of Corporate Real Estate Executives (NACORE).

The IDRC-NACORE alignment could give the corporate real estate industry an exceptionally high profile and unprecedented clout. Similarly, the CarrAmerica-Vantas merger takes the idea of working anywhere, anytime to another level. In fact, rival Regus Business Centres (www.regus.com) even weighed in to praise a joint venture related to the deal as "a positive statement on the health and the potential of the flexible workplace . . . "

FrontLine Gets the Corner Office

Here's a look at the deal's particulars. (And be forewarned; they're voluminous.) The winner in terms of who's running the merged ship is FrontLine Capital Group -- which, you might say, got the corner, hard-wall office in this deal.

FrontLine Capital dished out $210 million in cash to CarrAmerica and other shareholders in HQ Global Workplaces. That gave FrontLine Capital and other equity investors ownership of an approximate 74 percent common equity interest in the merged company.

CarrAmerica retains an approximately 26 percent common equity interest, valued in the transaction at $120 million. CarrAmerica's interest will shrink to approximately 16 percent after the conversion of preferred stock to common stock and exercise of warrants.

The new firm, which is retaining the name HQ Global Workplaces, is now billed by company officials as "the largest provider of flexible officing solutions in the world, with more than 2,500 employees, 43,000 clients and over 460 broadband connected business centers in 17 countries."

With the merger, FrontLine can designate nine of the merged company's 11 directors. And Scott Rechler, CEO of FrontLine Capital Group, will serve as Chairman of the Board. Rechler commented on the deal as it was consummated, including a look at the merged organization's near-term economic fortunes.

"We are extremely proud of this achievement and of the economic value we have created through the formation of such a powerful market leader," he said, "We have already begun to leverage the enormous strategic value of this merger for FrontLine, our partner companies, and our customers. HQ is an exceptionally well-positioned company, with an industry leading management team, strong revenues and exciting growth potential.

"For the year 2000, HQ anticipates revenues on a proforma basis in excess of $550 million," Rechler continued. "As the foundation of our partner network, HQ provides FrontLine with the ability to execute on our core mission -- leveraging new technologies to empower SMEs, entrepreneurs and mobile workers with the information, tools and services they need to become more competitive at a price they can afford."

Carr Gets Spot on HQ Board

In addition to retaining an interest in HQ Global Workplaces, CarrAmerica Chairman and Chief Executive Officer Thomas A. Carr will join the HQ Global Workplaces' Board of Directors. Commenting on the transaction, Carr said, "We are excited about HQ Global's future as they firmly position themselves as the global leader in flexible workspace solutions. CarrAmerica will continue to explore new avenues for growth that build value for our customers and shareholders, just as we have done with HQ Global and our early investments in the executive office suites business."

CarrAmerica's retained minority interest in HQ Global Workplaces will be accounted for as an investment under cost accounting methods. As part of the merger transaction, HQ Global Workplaces issued shares to FrontLine Capital Group. The $210 million in cash proceeds that CarrAmerica received will be used primarily to repay debt, to fund CarrAmerica's stock repurchase program and for other general corporate purposes, company officials said. HQ Global Workplaces also repaid $141 million of debt, which was guaranteed by CarrAmerica. Goldman Sachs acted as CarrAmerica's exclusive financial advisor in the transaction.

Even with the merger, CarrAmerica controls extensive real estate interests. Currently, CarrAmerica and its affiliates own a controlling interest in a portfolio of 277 operating office properties and have 16 office buildings under development in a broad range of markets, including Atlanta; Austin, Texas; Chicago; Dallas; Denver; Los Angeles/Orange County; Phoenix; Portland, Ore.; Salt Lake City, San Diego, the San Francisco Bay Area, Seattle, South Florida and metropolitan Washington, D.C.

In addition to its linkage with HQ Global Workplaces, CarrAmerica retains its interests in and strategic relationships with Broadband Office, a U.S. telecom company, and DukeSolutions, a Duke Energy subsidiary providing energy management programs.

Deal Casts Broad Real Estate Net

The presence of FrontLine Capital in the mega-merger casts a wide net that takes in a broad panoply of players that span both physical space and cyberspace. FrontLine Capital Group (NASDAQ: FLCG) is a publicly traded Internet-related operating company that identifies, acquires interests in, develops and manages a network of B2B e-commerce and e-services companies that service small and medium-size enterprises and larger companies' mobile work forces.

Thus far, FrontLine has committed $360 million in 12 companies, including HQ Global Workplaces, OnSite Access, EmployeeMatters, RealtyIQ.com, PIPE9, and UpShot.com. To maximize the potential of such "partner companies," FrontLine provides operational support and guidance through its internal management resources, advisory board, and its business development resources. FrontLine also provides partner firms with access to the resources and customer base of its entire network.

In addition, FrontLine as part of the merger arranged for an infusion of $195 million of third-party convertible preferred equity into HQ. That equity came from a group of prominent investors, including AEW Capital Management, Blackacre BNP Paribas, Capital Management, CIBC Capital Partners, Equity Office Properties Trust, First Union Real Estate Equity and Mortgage Investments, Fortress Investment Fund LLC, and Stichting Pensioenfonds ABP.

To effect the merger, HQ utilized a $225 million senior-term loan and will have a $50 million revolving line of credit from a syndicate co-led by BNP Paribas, Deutsche Bank, and Citibank, with ING Barings as a lead participant. The company has also secured $125 million in a subordinated bridge loan from UBS Warburg.

FrontLine now owns 63 percent of the common equity of HQ and anticipates that it will own approximately 51 percent of HQ upon conversion of the preferred equity, depending upon the time of conversion and other factors.

HQ-EOP Joint Venture Coincides with Merger

In concert with the merger, HQ also announced the formation of a joint venture with Equity Office Properties Trust (EOP at www.equityoffice.com), the nation's largest publicly held owner and manager of office properties, with a national portfolio of 294 buildings comprising 77 million sq. ft. (6.9 million sq. m.).

HQ officials asserted that the EOP joint venture significantly enhances HQ's competitive advantage by providing HQ with access to EOP's Class A office locations in all major markets. The EOP deal will also allow HQ to more rapidly expand its U.S. network of business centers, company officials asserted.

HQ will serve as a preferred business service provider to EOP's large and expanding customer base, offering EOP and its tenants access to a variety of outsourced business services, according to HQ officials.

FrontLine-HQ Synergies

In like fashion, the FrontLine-HQ linkup comes with some potentially powerful synergies, company officials explained.

HQ is "at the heart of FrontLine's business model and market strategy," FrontLine officials explained. HQ, they said, provides FrontLine partner companies with "a global infrastructure platform for efficient operations and a unique virtual/physical distribution channel that allows direct access to a growing, broadband-connected community of customers." (CEO of the pre-merger

HQ Global Workplaces, Kusin will continue as CEO of the new combined company.) FrontLine, on the other hand, provides HQ with greater resources, relationships, customers and access to capital, as well as more e-business expertise, value-added services and revenue opportunities.

Explained Gary Kusin, CEO of HQ Global Workplaces, "By leveraging FrontLine's powerful network together with our global infrastructure, talented team of employees, and deep customer knowledge and relationships, we are uniquely positioned to deliver continuous innovation, lasting value, and market leadership."

Regus Praises HQ-EOP Pact

In a bit of an unusual move that reflected both fact and PR-savvy, Regus Business Centres weighed in with its own public statements about the HQ-EOP joint venture. And, unlike what some observers may have expected, Regus praised the transaction.

"We are encouraged by Equity's financial commitment to the category, as it further underscores what we already knew," said Robert Gaudreau, Regus' head of U.S. operations. "This is a burgeoning industry with a bright future and there is plenty of room for healthy competition." Significantly, Regus currently partners with Equity in 11 locations. And Regus will add another partner location with Equity by the end of the year 2000, Gaudreau added.

Gaudreau, in fact, availed himself of the opportunity to also detail the ambitious expansion plans that are under way for Regus. In addition to its existing relationships with five national REITs, Regus, he said, will shortly be announcing a number of new partnerships with other landlords, further broadening the company's U.S. network coverage.

In fact, Regus' plan for 2000 is to open a new business center every three days, by the end of the year having approximately 60,000 workstations, Gaudreau said.

Such a jackrabbit clip would certainly track with Regus' recent history. The company has doubled in size each year for the past decade, and plans to open between 55 and 75 U.S. centers this year.

The Regus announcement also included the company's observation that it, not HQ, is the big fish in the executive suites pond.

"Regus is currently the largest global provider of serviced offices as defined by revenue and number of countries of operation," the company's statement noted.

So, who's bigger? We'll leave it to the individual competitors here to define all the ways in which they're truly No. 1.

For certain, though, HQ and Regus can agree on one thing. The executive suites market for the moment has hit a very hot expansion mode, with that market no longer defined only by the physical world.