September 30, 2014
By: Leonard Lee, CPA
With over 25 years of experience in real estate finance and investment banking, Fredric Leffel is well versed in the principles of acquiring commercial properties and growing portfolios. Prior to becoming President of Kaufman New Ventures, Mr. Leffel found success in running his own real estate firm and has always had a knack for identifying opportunities, negotiating deals and getting things done.
We asked Mr. Leffel, a panelist at the Second Annual EisnerAmper Real Estate Private Equity Summit, to share his insights on limited partnerships, investor expectations and strategies for success
What are some of the obstacles a General Partner (GP) faces in raising funds from institutional investors?
Mr. Leffel: The hardest part is actually convincing investors that there are still opportunities out there! Many global investors broke into the New York City real estate market following the 2008 recession, but similar opportunities are becoming harder and harder to find. As the General Partner, it is important to understand the nuances of the NYC real estate market and convey that to the potential investors.
What do you think investors are most concerned about?
Mr. Leffel: Some investors are concerned that the current market is “overheated” and are worried about paying too much for overpriced properties. Historically, investors would buy properties and then sell them for large profits, but that’s becoming more difficult in the current NYC market. Investment groups are still actively looking to buy, so the demand has made competition a lot fiercer among the GPs looking to create deals with capital partners.
What are some of the strategies General Partners can employ in structuring deals and raising funds?
Mr. Leffel: It all starts with developing a sound business plan, one that clearly outlines the value you can provide to your investors. Some strategies GPs should keep in mind include:
- Always make sure you have a protected management agreement.
- Be mindful of the knowledge and understanding your capital investors possess. Most investors know the intricacies of the real estate market and have the expertise to turn opportunities into profitable operations.
- Perform your due diligence and clearly understand investor expectations.
You’ve been very successful at vetting properties. What key considerations are important during the valuation process?
- Understanding the specifics surrounding the areas, markets and sub-markets that appeal to your target tenant.
- Staying abreast of all tenant trends. Right now, High Growth Industries (HGI) tenants are the companies looking for space in the NYC market. HGI tenants are growing entrepreneurial small to mid-size tech, media and fashion companies, most of which can’t afford or won’t pay “Class A rents”.
- Know what certain industries expect. For example, tech and fashion companies are looking for space with specific floor layouts based on their companies’ structure.
- Always keep in mind the cost of producing a space to meet your tenant’s needs and evaluate if it is realistic.
- Identify whether matching the tenant’s rent is more cost-effective than making structural improvements, but never overlook initial investment expectations.
You can learn more about Mr. Leffel at the Second Annual EisnerAmper Real Estate Private Equity Summit on October 1!