Somewhere Out There: Driving Deal Flow in a Picked-Over World
At the recent EisnerAmper Real Estate Private Equity Summit. a panel session focused on deal flow included a discussion of trends in the Manhattan market. Some of the panelists suggested looking for off-market deals. The sheer volume of deals in the market might make it harder to attract funding from institutional investors. After all, institutions usually want to see deals of at least $50 million and a proven record of past performance. Other sources of investment include foreign investors, as many are looking to invest in the NY markets. Another common approach to gain capital is joint ventures with equity partners. Asset management fees, production fees, and promotion fees are starting to decrease. More deals are also being done with a “pari passu” structure, where all parties involved have equal rights with existing shares. The key to success is finding creative ways to stay in the marketplace.
One of the largest growing industries in New York City is the construction industry. The volume development of high rise luxury apartments and office towers will change the future Manhattan landscape. That activity is creating a “big deal” environment with limited competition for debt and equity investors. With an abundant amount of lenders in the marketplace, there are opportunities to get funding at a large discount on replacement cost. Prices on the value of these deals are high, but lending has increased significantly. Panelists also shared that core deals typically are borrowed at 50% or under, whereas value-add and mezzanine deals could be as high as 90% leveraged. While creating deals may require a little more creativity in the marketplace, there are still opportunities to be found.