Manhattan office developer launches $200M fund

Chicago-based Oak Street Real Estate Capital confirmed as investor in KPG’s latest fund

New York /
Apr.April 06, 2020 01:30 PM
Greg Kraut and Rod Kritsberg of KPG Funds (Credit: KPG)

Greg Kraut and Rod Kritsberg of KPG Funds (Credit: KPG)

Manhattan office developer KPG Funds is trying to put its money where its mouth is.

The owner and operator, formerly known as K Property Group, is raising a $200 million fund, according to paperwork filed March 31 with the Securities and Exchange Commission. The minimum investment for outside investors is $5 million.

KPG CEO Greg Kraut said the fund had been in the works before the pandemic but the firm decided to press on. “We’re New Yorkers through and through and we’ve all been through a lot,” he said, “and we just have a lot of confidence in New York coming out of this.”

Kraut said KPG will be targeting properties with an acquisition price ranging from $85 million to $300 million with 55 percent to 65 percent leverage, and hopes to make the first acquisition this summer.

While some office landlords are bearish on how demand for office space will change after the pandemic, Kraut remains optimistic.

“I think coming out of this you’re going to see a need for companies wanting to take more space rather than less space,” he said. “Everyone wants to work out of their house until they have to work out of their house for an extended period of time.”

KPG redevelops small Class B and C offices, adding amenities commonly seen in co-working or larger offices to its smaller properties. The firm owns a handful of buildings, mostly in Lower Manhattan, including 446-448 Broadway, 30-32 Howard Street in Soho and the site of the Lower East Side’s former Sunshine Cinema. According to records and the firm’s founders, these properties were acquired as part of KPG’s first private equity vehicle.

That initial fund began raising capital in early 2018, seeking $75 million. As of last month, $33.4 million had been raised, a filing shows. Kraut said $50 million was the initial target — the “additional $25 million” was just a precautionary cushion — but KPG ultimately kept the fund small.

“We decided to limit our capital raise and focus our energy on proving out our business model and building a track record,” Kraut explained.

KPG’s previous investors have included large institutions such as Chicago-based Oak Street Real Estate Capital. Oak Street’s managing partner Larissa Herczeg sits on KPG’s advisory board and confirmed that Oak Street will be involved in KPG’s second fund.

Other board members include Simon Ziff of Ackman-Ziff Real Estate Group, media mogul Strauss Zelnick, L&L Holding’s Robert Lapidus, and Robert Sessa, head of real estate for the Employees Retirement System of Texas.

Kraut noted that investment isn’t a requirement for board members. “Less than a quarter are investors,” he noted.

Write to Erin Hudson at [email protected]


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