09/30/2009

Kaufman Maps Buying Spree in Manhattan

After sitting on the sidelines for several years, Kaufman Organization plans to spend up to $750 million on Manhattan properties over the next two years.

The New York firm, which dates to 1909, has tapped Fred Leffel to oversee the acquisition platform, called Kaufman New Ventures. Leffel joined Kaufman in July after an eight-year stint as a senior vice president at Savills.

Thanks to the sharp market downturn, Kaufman thinks it will be able to garner value-added or opportunistic returns by acquiring office, multi-family, retail and mixed-use properties that need minimal renovation or have vacancy rates that are slightly above average.

The company will also consider buying distressed senior debt with an eye toward taking control of the collateral, and providing "rescue" equity to struggling owners in exchange for majority stakes. But it will bypass development deals, hotels, industrial properties and residential condominiums. So far it has bid on a handful of offerings, including a note on a Manhattan office building.

Kaufman New Ventures plans to invest its own capital and, in some transactions, team up with wealthy individuals and funds. Including leverage and capital from partners, Kaufman expects to spend $500 million to $750 million over two years. On individual transactions, equity could represent 40-100% of the purchase price, depending on the availability of leverage.

Kaufman owns some 4 million square feet of office properties and, to a lesser extent, apartment buildings. It manages another 1 million sf on behalf of clients.

The company's sweet spot has typically been mid-sized Manhattan office buildings. For example, in September 2005 the firm teamed up with KBS Realty Advisors of Newport Beach, Calif., to buy the 88,000 sf office building at 130 Prince Street in Manhattan from investor Richard Talmadge for $46.4 million. It sold the property less than two years later for $112 million to a partnership between a J.P. Morgan value-added vehicle and Waterman Interests of New York.

For the most part, however, Kaufman is a long-term holder. It substantially curtailed acquisitions during the bull market, when prices ran up to stratospheric levels. That decision, coupled with the fact that its portfolio has fairly limited leverage, has spared the company of the "legacy" problems that are hounding many other real estate owners.

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