Despite the current volatility and concerns about financing, real estate will continue to be a good investment in the long term, says Richard A. Kessler, chief operating officer of Benenson Capital Partners LLC (BCP).
“Real estate is a hard asset. It’s bricks and mortar; you can reach out and touch it,” notes Kessler, also chairman of ULI New York. “We’ve all become skeptical with the financially engineered products and derivatives from Wall Street that seemed responsible for the downfall of the global financial system. Real estate isn’t black magic. You have space, you rent it, you collect your money, you make a profit.”
Kessler notes that the 105-year-old BCP—a leader among privately held real estate investment, development, and asset management operating companies—believes that high-quality real estate properties will retain their appeal and appreciation over time.
The firm, which seeks to maintain, protect, and preserve its 150-asset portfolio, focuses on undervalued opportunities. “One of our hallmarks is an eye for value, and we haven’t seen tremendous opportunities right now, so we’re sitting tight,” Kessler continues. “There have been a few things we’ve bid on, but we don’t feel comfortable buying at that level. There is a disconnect with pricing. People are taking on more risk, but not being rewarded for taking on that risk.”
Many buyers anticipated that the current real estate downturn would parallel that of the 1990s, when some assets could be purchased for 20 cents on the dollar, says Kessler. “But today isn’t the 1990s,” he says. “It is a different environment. There are not a lot of bargains out there, and there is a lot of capital on the sidelines.”
Benenson Capital Partners is not sitting still, though. BCP just signed GE Asset Management, a division of the General Electric Co., to a long-term lease at its six-story, 260,000-square-foot office building in downtown Stamford, Connecticut.
Another Benenson project is renovation of the 1 million-square-foot Cross County Shopping Center in Yonkers, New York. Plans for revitalization of the center built in 1954 include a 93,000-square-foot expansion of the existing Macy’s and the addition of new retailers, such as A|X Armani Exchange, H&M, Forever 21, and Victoria Secret Pink.
As COO of a well-respected firm that has been in the real estate business for more than a century, Kessler offers some advice:
Don’t put all your eggs in one basket. “Diversify, not only in property type, but also with tenants and geography.”
Look to the future. “Benenson has a long-term focus. Think over time, not just the short term. When you have a longer focus, you make decisions differently and you can weather fluctuations in the marketplace better.”
Be conservative. “Don’t put the maximum amount of debt in a transaction. We don’t try to squeeze 99 percent of debt onto a property, because any volatility would hurt. We’re cautious. We usually only have 70 to 75 percent leverage.”
As chairman of ULI New York, Kessler notes that the Big Apple has a number of good real estate organizations. “We want to expand ULI’s reach,” he adds. “One of the things that got me involved with ULI in New York was its UrbanPlan outreach: ULI members visit inner-city schools to talk about urban planning and real estate partnerships with high school students. ULI is involved with a number of schools now, but we want to expand that by increasing the number of volunteers.”