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February 1, 2008 By Natalie Kostelini
Target: Distressed property Investors itching to gobble up locations when the prices bottom out Local real estate players are poised to deploy hundreds of millions of dollars this year to take advantage of the slumping real estate market by snapping up distressed properties nationwide. Lubert Adler Partners LP, Westrum Development Co. and Rubenstein Partners are among local investors who have raised massive funds to seize on what they expect to be one-of-a-kind deals at rock bottom prices. They aim to be among a group of risk-takers who seize upon downturns, seeking out opportunity and hoping to make astute real estate acquisitions that will eventually lead to handsome returns. The largest local player is Lubert Adler, whose private equity funds were, beginning in 1997, on the vanguard of investing in troubled properties. It has continued ever since, ramping up the size of its funds along the way. It's currently spending its fifth fund, which is $1.7 billion. It is also amassing its sixth, and largest, fund that will total roughly $2.5 billion, according to people familiar with it. As part of positioning itself for its buying spree of distressed assets, Lubert Adler in 2006 brought in Lenny Klehr, former head of the Philadelphia law firm Klehr Harrison Harvey Branzburg & Ellers, whose legal background includes real estate, private equity and debt restructuring. It also "significantly" beefed up its staff in its five offices across the country with former bank CEOs and individuals with backgrounds in distressed acquisitions, said Dean Adler, a founding partner. "We're looking at condominium developments that have the potential to fail, loans on land that may have issues, overly leveraged properties, and properties and mortgages that are in default," Adler said. The firm focused spending its fifth fund on two areas: value add and distressed. As for value add, Lubert Adler will buy properties in need of repairs or renovations as well as vacant office buildings. It also acquires companies for their valuable real estate holdings. For example, as a joint venture partner, the firm bought last year Central Parking and another parking operator, as well as Albertson's, its operating business and its 750 stores.
Villanova School of Business 2008 Media Report