08/08/2012

L&L Eyes Fund Targeting NY Office Buildings

L&L Holding is in preliminary discussions with institutional investors about raising at least $500 million of equity for a fund that would buy New York office properties.

L&L has traditionally served as a minority owner and property manager, teaming up with equity partners on a one-off basis. Having a pool of capital at its discretion could make the firm more competitive in bidding for offerings in Manhattan, where large cash deposits are often required. “In today’s market, you have to have the cash to compete,” said one longtime player.

The New York property firm, headed by Robert Lapidus and David Levinson, may also be looking to capitalize on investor interest in fund shops that can manage properties themselves, without having to team up with local operators. Some institutional investors have shied away from “allocator funds” that need to hire third-party firms — such as L&L — for leasing, tenant retention and property upgrades.

Several market players said L&L has talked to institutional investors over the past few months about setting up a commingled, closed-end fund or a club fund. If the company decides to proceed, investors expect it to solicit at least $500 million and possibly north of $1 billion of equity.

With leverage, L&L would potentially have several billion dollars of investment power. The fund would focus on Manhattan, although properties in the outer boroughs and nearby suburbs would likely be considered.

A seed investment could be an L&L-owned property at 425 Park Avenue in Midtown Manhattan. The site currently houses a 600,000-square-foot office building. L&L plans to demolish most of the structure and construct another office building. The fund would likely help finance the roughly $750 million project.

Lapidus and Levinson founded L&L in 2000. The firm’s 5 million-sf portfolio includes interests in the Manhattan office buildings at 195 Broadway, 200 Fifth Avenue and 600 Third Avenue. Its joint-venture partners have included J.P. Morgan Asset Management, Prudential Real Estate Investors and fund shops Beacon Capital and Carlyle Group.

L&L is exploring the formation of a fund at a time when debut managers have found it hard to attract capital. Since the downturn, institutional investors have tended to prefer veteran operators, such as Blackstone, Westbrook Partners and Starwood Capital.

Still, L&L would have some good selling points, said the longtime New York investor. “They’ve got a great track record, they’ve got some great assets, and they’ve got some great partners,” he said. “The question is: Are they corporate enough to pull this off? When you’re a fund, you’ve got a lot of accounting and other things to do. You have to answer to people. They have to become much more institutional themselves than entrepreneurial.”

Back Print