Institutional investors have long coveted New York real estate, but as with most aspects of life in the city, the rules here are different. Prices are generally higher and deals move quickly, making it difficult for newcomers to break into the market.
But some outside real estate firms have cracked the code.
Just ask Invesco Real Estate. Two years ago, the Dallas-based investment firm had effectively no presence in New York City. Since then, however, Invesco has been involved in a dozen deals here worth about $2 billion. And it is planning to transact deals worth up to $1.5 billion this year.
Last fall alone, the company paid $195.8 million for a majority stake in a retail condominium in the former Knickerbocker Hotel at 1466 Broadway, and purchased the Madison Belvedere apartment building at 10 East 29th Street on behalf of a client.
Invesco “made a decision in late 2009, early 2010 to be much more aggressive in New York,” said Andrew Scandalios, senior managing director at the mortgage banking firm HFF, who has done several deals with Invesco. “They know what they want, and they have been successful in going after it.”
What Invesco wants is a little bit of everything, from retail to multi-family to office, according to Greg Kraus, managing director and head of acquisitions for the firm.
“We had been significantly underweight to the New York market, so we made a conscious effort to grow our portfolio,” Kraus told The Real Deal.
Invesco paid $195.8 million for the majority stake in a retail condo at the former Knickerbocker Hotel last fall.
QUICK COMPANY FACTS
FIRM NAME: Invesco Real Estate
HEADQUARTERS: Dallas
REAL ESTATE ASSESTS UNDER MANAGEMENT: $49.6 billion
DIRECT HOLDINGS: $30 billion
NYC DEAL VOLUME SINCE 2011: $2 billion
Early investors
The Madison Belvedere apartment building at 10 East 29th Street.
Invesco Real Estate is a unit of the publicly traded mutual fund giant Invesco, which was founded in 1983 and has 17 locations around the world.
At the end of September, Invesco Real Estate had $49.6 billion under management in its real estate portfolio, nearly $30 billion of which was tied up in direct holdings, with the balance invested in real estate securities.
From February 2001 through November 2007, Invesco was involved in just six real estate transactions in Manhattan, according to data from Real Capital Analytics. And during the financial crisis, it abandoned the city for three years, not unlike many of its competitors. But the timing and scope of its recent activity here has turned heads.
“They were probably the earliest among institutional investors to recognize the market was turning,” said Scandalios. “The others weren’t too far behind, but Invesco was first.”
Kraus said the decision to double down on New York was made in the thick of the economic downturn, late in 2009. At the time, Invesco executives felt that the market might soon rebound, he said, and the firm had capital on hand to make moves they hoped would put them ahead of their competitors.
Despite its size and corporate backing, Invesco still had to prove itself in the city.
“We’re a Dallas firm, and even though we had long-standing relations in New York, we needed a local presence,” Kraus said.
In the summer of 2010, Invesco hired Todd Bassen as head of acquisitions for the greater New York area. Bassen satisfied the local-knowledge requirement: He’s a 17-year city veteran with stints at both Vornado Realty Trust and at RREEF Real Estate, the real estate investment business of Deutsche Asset Management.
“Todd is one of the smartest guys in the business,” said Adelaide Polsinelli, senior director at Manhattan-based Eastern Consolidated.
Six months after Bassen joined the company, Invesco completed its first New York transaction in three years, refinancing the Brill Building at 1619 Broadway, which it had purchased with Stonehenge Partners for $151 million in 2007. Then, in December 2010, Invesco made its first New York City purchase since the Brill, paying $55 million for 512 Broadway, a retail property in Soho.
The company also made forays into the office and multi-family markets. Invesco completed a $750 million recapitalization of the former Helmsley Building at 230 Park Avenue for owner Monday Properties; spent $122.5 million to buy the Elektra, a residential rental building at 290 Third Avenue; and partnered with the Kaufman Organization to purchase the 17-story, 270,000-square-foot office tower at 100-104 Fifth Avenue for $93.5 million, or $340 per square foot.
In all, Invesco has participated in seven transactions in New York in the past year, typically spending $100 to $300 million on each purchase.
The company has targeted areas that had been under-represented in many institutional investor portfolios, like multi-family properties in Brooklyn and lower Midtown. It has also taken on properties that require renovation, including 100 Fifth Avenue, which it bought in a bankruptcy auction with M &T Bank as a lender on the deal.
In targeting such a wide swath of the market, Invesco has been somewhat unique, brokers said.
“I don’t know anyone who’s been as active as they’ve been across a broad range of categories, which is entirely attributable to Todd Bassen’s work,” said Will Silverman, a senior managing director at Studley who brokered Invesco’s deals at the Madison Belvedere and 100 Fifth.
Local experience
The former Helmsley Building at 230 Park Avenue, where Invesco completed a $750 million recapitalization;
Bassen, who has three New York staffers and a Dallas-based closing team working under him, said his local experience has helped Invesco compete for deals in the crowded New York marketplace.
“It’s a very difficult market to acquire assets in,” Bassen said. “You have the local families, the REITs, established institutions and the foreign capital that all want to be here.”
Polsinelli said Invesco’s ability to beat out other firms for deals is due largely to Bassen.
“His industry relationships are solid,” she said. “He’s one of the first calls most brokers will make.”
It also helped that Bassen had “a lot of capital availability,” as Kraus put it, thanks to Invesco’s desire to ratchet up its New York holdings. Kraus would not say how much Invesco has available for New York business, but said the firm intends to do between $1 and $1.5 billion in deals here this year.
Kraus said Invesco won’t slow down in 2013, even though many sectors of the market have tightened. In particular, he said Invesco may look to do more multi-family and retail deals in Manhattan.
“The team loves, in particular, the multi-family and retail sectors in New York,” he said.