Hedge funds
from page 18
“I would say 2012 was the year it really took off,” Blomquist said. “In 2011 you had some of the really early players getting in, but the hedge fund–type, Wall Street–backed money didn’t really jump in until 2012.” The strategy has exploded since then, with private equity giant the Blackstone Group reportedly spending $3.5 billion on 20,000 single-family houses and Thomas Barrack’s Colony Capital raising $2.2 billion. While most of the groups buying individual houses are private entities, some have now announced plans to go public, creating single-family REITs. Due to interest from these investors, vast amounts of inventory have been absorbed in markets like Orlando, where investors over the last 12 months “bought up all the cheap stuff,” said Hinricher. Jon Grabowski, president of Precise Associates Inc., a Detroit-based investor that purchases houses and rents them out, said he and other investors have begun considering acquisitions in the Northeast, including Baltimore and Philadelphia. Home prices are still too high in New York, he said, but that could change. “The model makes sense in the Northeast, and it’s a completely untapped market, which is attractive to us,” he said. Some investors have already dipped their toes in the water, purchasing distressed single-family homes in the New York area. RealtyTrac identified at least 12 investor entities that included single-family homes in New York State among the large numbers of foreclosed properties they purchased in 2012. For example, a California-based entity called Lvs Title Trust I last year purchased seven foreclosed single-family homes in New York, including one in Brooklyn, one in Staten Island and one in Suffolk County. That was alongside some 120 other homes it bought nationwide. So far in 2013, the entity has purchased three single-family homes in New York State, including one in Brooklyn. Meanwhile, an entity called
Gecko Realty bought five foreclosed single-family homes in New York State — including one in the Bronx, two on Long Island and two in the Hamptons — in addition to around 20 other properties it purchased across the country. Of course, not all of these are institutional investors — some are likely smaller companies or property flippers. For example, as The Real Deal has reported, Retained Realty is a company affiliated with Howard Milstein’s Midtown-based Emigrant Savings Bank that specializes in buying distressed properties and quickly selling them for a profit. According to RealtyTrac, Retained and associated entities purchased 29 foreclosed single-family homes in New York in 2012, including four in Queens and 12 in the Hamptons. And Blomquist said huge players like Blackstone don’t seem to be purchasing large numbers of single-family homes in New York — at least not yet. That’s partly because there simply aren’t enough distressed properties available to make it worth their while. Still, some large players want to diversify and provide investors with a “blended return” by buying a few single-family homes in the New York area, Hinricher said. And experts said interest in New York is growing, especially as more foreclosures are coming down the pike. New York, like Florida, “has a very lengthy foreclosure process,” Blomquist said. “It’s just taking longer for some of the foreclosures to come through the pipeline. So we believe there’s going to be more opportunity to buy at the foreclosure auction in New York than last year.” A market like Queens, which has seen more foreclosures than other areas of New York City but where rents remain high, would make sense for institutional investors who want to buy up single-family homes, he said. Some investor groups are even buying individual apartments in areas of Upper Manhattan, Hinricher added, where new big-box stores and major infrastructure investments like Columbia’s expansion are attracting institutional money.
Hedge funds + Hamptons
success this year in part to its strong ties to international buyers. “We have remained small in size, but the total volume of our deals is increasing tremendously because of the fact that we have a huge global reach of clients,” Berk explained. She added that the firm has worked as the buyer’s broker in sought-after developments, such as 432 Park Avenue. “It’s been a good year [for] selling new [construction] product,” Berk said. “We find our clients are seeking new apartments that will become available in two or three years. By the time these apartments [are ready], the return on their deposit is going to be very significant.” Berk said she only anticipates the market getting busier as more international clients seek out high-end real estate in Manhattan. Of course, that depends on whether the supply of Manhattan residential properties gets boosted.
sented the buyer of a $12.9 million apartment at 823 Park Avenue. While in the past, the firm’s client base was generally split evenly between buyers and sellers, she said that’s recently shifted to about 70 percent buyers and 30 percent sellers. “People wanted to buy first, then put their homes on the market,” she said. “When the market has a scarcity of product, they’re afraid to sell first. They’re afraid they’ll sell and be homeless.” She noted that Kleier Residential also listed several multimillion dollar properties in early April after TRD’s data was collected — such as a $3.5 million unit at 55 East End Avenue — to coincide with families returning to New York from spring vacation. As for Fox Residential, Fox said she’s not concerned about a drop in listings to $64.4 million, down 24 percent from $84.5 million last year. “I never sweat it when we’re down a little bit because I know we always make it up,” she said. Fox recently sold a $21 million penthouse duplex listing at 733 Park Avenue. The eight-year-old brokerage Platinum Properties also saw a drop in listing-dollar volume, from $20.3 million last year to $13.4 million. And Elegran Realty entered the fray this year with seven listings worth $16.8 million. Michael Rossi, cofounder of the five-year-old firm, attributed its “under-the-radar success” to its out-of-the-box approach. For one thing, all of the firm’s 38 agents are new to real estate. “None of us came from another firm,” Rossi said. “We’re really trying to create something different here.” TRD
Now that hedge funds and other players have gotten a taste of the single-family market, sources say they expect them to expand into other sectors of real estate. Already, “hedge funds are adding Hamptons properties and commercial properties to their portfolios,” said Ernie Cervi, executive managing director in Bridgehampton for the Corcoran Group. He declined to give more details due to client confidentiality, but said funds are investing in a range of East End properties, from those that “can be developed and resold” to longer-term investments, “from raw land to commercial properties.” One reason for the interest, he said, is that commercial spaces in the wealthy Hamptons are few and far between. “Given the limited amount of commercial space in each hamlet, one might think that a commercial building in an exclusive resort town can only become a trophy property and increase in value over time,” he said. Michael Rossi, who managed a trading desk for a boutique hedge fund before cofounding the Manhattan-based residential brokerage Elegran Real Estate, agreed. “Whenever there’s some type of weakness in any market, hedge funds will move into that marketplace,” said Rossi. Whether it’s commercial properties or single-family homes, real estate brokers may not realize that their buyer is a hedge fund. Tony Cerio, a Brown Harris Stevens broker who has several commercial properties for sale in the Hamptons, said buyers rarely give details about the identity of the investors in a deal. “We have groups that look at them, whether hedge funds or not — we don’t know,” said Cerio, who is listing Inlet Seafood in Montauk for $21 million. “But they don’t come right up to you and say, ‘We’re a hedge fund buying.’ They never let you know that.” TRD
Boutiques from page 43 husband, Mark Consuelos. Modlin is also listing a townhouse at 19 East 70th Street for $38 million. The Italian Renaissance mansion, formerly home of the Knoedler Gallery, was not included in TRD’s rankings because it’s classified as a multifamily building, though Modlin said it is being marketed as a single-family home. Another firm that jumped on this year’s ranking was Kaiser’s Key-Ventures, which took the No. 3 spot, up from No. 7 last year. It had seven exclusive listings for a total of $79.7 million. That’s significantly more than its $45.7 million total for last year, despite the fact that the firm had a higher number of exclusives — 11 — last year. Kaiser, who founded the firm 47 years ago, said he’s used to dealing with a shortage of listings. “There’s always a lack of inventory for the best things in the best buildings,” he said. Kaiser said his niche is working discreetly with high-end clients and celebrities who don’t like publicity. “We do very well, in a low-key way,” he said. And he’s not showing signs of slowing down. Even as he approached his fifth decade running Key-Ventures, Kaiser said he’s nowhere near retirement. “As long as I’m alive, we’ll go on,” he said. Meanwhile, the 13-agent firm Mercedes/Berk jumped to No. 5 in the rankings this year, up from No. 10 last year, with its listing volume increasing to $38.2 million year-over-year from $17.7 million, TRD’s data shows. While the firm keeps a relatively low profile, it’s known for its high-end listings in buildings such as 15 Central Park West. Firm principal Noel Berk attributed the company’s 106 May 2013 www.TheRealDeal.com
Inventory squeeze
Some firms’ results were concrete proof that the inventory squeeze may be most disproportionally felt in the boutique brokerage world, where those one or two high-priced listings can make a huge difference. Kleier Residential, Fox Residential and Platinum Properties all saw the dollar amount of their exclusive listings drop this past year. Kleier’s ranking dropped from No. 3 to No. 6, TRD’s data shows, and its dollar volume of listings fell from $113.2 million to $37.4 million year-over-year. But firm head Michele Kleier said with listings scarce in the current market, she’s been representing more buyers than usual. For example, she said, in February she repre-
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