With Tall Pines Capital, Leonard Stern’s son looks to branch out

Since stepping down late last year as deputy head of a family empire that controls some 38 million square feet, Emanuel “Manny” Stern has spent the past several months quietly building an investment vehicle aimed at the city’s high-stakes residential market.

But wary of getting caught in a cycle some predict is in extra innings, the 52-year-old former CEO of Hartz Mountain Industries is playing it safe. Rather than taking on his own ground-up projects, he’s partnering with the likes of Michael Stern’s JDS Development Group and Ben Shaoul’s Magnum Real Estate Group through debt and equity investments.

The new venture, Tall Pines Capital, has “plenty of dry powder,” Stern told The Real Deal.

Stern was president and chief operating officer of Hartz Mountain Industries, the company his father — billionaire investor Leonard Stern — founded in 1966 and built into a Northeast powerhouse.

Since stepping down in December, he’s been making the same commute to the boutique office building Hartz owns at 667 Madison Avenue, which counts the likes of Koch Industries and the Loews Corporation as tenants.

But instead of taking the elevator up to Hartz HQ on the 24th floor, he gets off a few floors below, where Tall Pines is scouring the market for what Stern described as “alternative real estate investments, as opposed to Hartz’s traditional market.”

“We all decided it was better for me to create a separate silo or platform here to do that,” he added.

Manhattan condo development remains a far cry from the Garden State warehouse market where Hartz made its bones. Stern’s departure came during a period of transition for the company, as over the past five years it largely divested its 9 million-square-foot suburban office portfolio and funneled its assets into multifamily properties in places like Chicago, Austin, Seattle and New Rochelle.

Tall Pines eventually hopes to bring on third-party capital and sponsor new developments. But with the market frothy this late in the cycle, Stern and his partner, Brad Settleman are placing investments as preferred equity and mezzanine debt, leaving them less exposed to the vagaries of the market.

“You can consider the condo market in New York City to be at its peak or approaching its peak, but we’re still investing in it in a structured way,” said Settleman, a principal at Tall Pines who came from David Winter’s 40 North Management and was earlier a managing principal at Latus Partners.

The market for such investments has grown since the recession, when lenders pulled back.

“If you ask me today if you could have a certain lender in the market that could provide a niche for you who would it be? It’s either mezz or preferred equity lenders,” said capital markets broker Rich Horowitz of Cooper-Horowitz. He brought Tall Pines its first deal, a $6 million mezzanine loan to David Amirian of the Amirian Group for its $54 million, 40,000-square-foot condo development at 117-119 West 21st Street in Chelsea.

Tall Pines also holds a preferred equity stake in 514 West 24th Street – the High Line-adjacent building being developed by Nissim Ben-Nun’s Largo Investments and JDS – and is a joint-venture partner in Magnum’s Bloom62 Rental Building On Avenue B in Alphabet City.

Sources said Tall Pines has two similar projects lined up, one in Brooklyn and another in Long Island City.

“I think that now they’re taking a risk-averse position this late in the cycle,” said Marc Warren, a broker at Ackman-Ziff Real Estate Group. “They’re smartly focusing on capital preservation ahead of returns. When the market changes I can see them being more aggressive developers as opposed to people focused on the debt and preferred equity side. That’s the smart thing to do.”

“They’re very well-capitalized and that’s obviously really important,” he added. “But what’s unique about them is that when you look at their combined track records, there are very few losers.”

Stern said he has big aspirations for Tall Pines, named after his Connecticut home. But for now, he’s focused on building a track record.

“Given where we are in the cycle we want the story to tell itself,” he said. “If we go out there and do a year’s worth of deals – not too many, not too few –  after that year the story of what kind of deals we’re doing will tell itself.”