The private equity firm behind a $1 billion real estate portfolio in Brooklyn and Miami said its investments in two big projects have been wiped out — and one critic is blaming a pair of 20-somethings who were trusted with the company checkbook.
JZ Capital Partners recently wrote down to zero its stakes on a Downtown Brooklyn development site and a portfolio of properties in Miami’s Design District, the company’s annual report shows.
“In the case of two substantial investments, Fulton Mall and Design District, the markdowns at the property level were sufficient to extinguish the company’s entire equity in these properties,” the report disclosed last month.
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The New York-based private equity firm, which trades on the London Stock Exchange, had invested $23.3 million in the development site on Fulton Street, which has enough development rights to build a tower of about 570,000 square feet.
The firm, which sold a 49 percent stake in the property in 2018 to the California-based developer HomeFed Corporation for $52.5 million, most recently valued the property at roughly $140 million in late February. That valuation put it under water on the $154.6 million loan Apollo Commercial Real Estate Finance holds on the site.
In South Florida, JZ Capital wrote off its $164.7 million investment in its Design District Portfolio, on which Apollo also owns a $220 million note. JZ Capital valued the property in February at $130 million.
A representative for JZ Capital could not be immediately reached for comment.
JZ Capital’s sizable bet on real estate was something of a reach for the company, which had traditionally invested in small-cap companies.
But the company pivoted and to put its money to work in real estate, JZ Capital teamed up in 2012 with RedSky Capital, which had been formed by Ben Bernstein and Ben Stokes six years earlier. (Sources told The Real Deal that Ben Bernstein’s father, Jonathan Bernstein, is a friend of JZ Capital co-founder David Zalaznick.)
The partnership appeared to enjoy some early success, including bringing the first Apple store to Brooklyn.
But some projects had trouble getting off the ground, and last year JZ Capital waved a red flag when it disclosed an appraisal found its $1 billion portfolio to be overvalued.
Alan Brierley, a funds analyst at Investec, put the blame on JZ Capital for entrusting its investments to what he characterized as a pair of inexperienced recent college grads.
It was the result of an “unfathomable and cataclysmic decision to appoint RedSky Capital, effectively two partners just out of university with a grand total of 12 years’ aggregate experience, to build a $1 billion real-estate portfolio,” he said, according to MoneyWeek.
Bernstein and Stokes did not immediately respond to a request for comment.
Contact Rich Bockmann at rb@therealdeal.com or 908-415-5229