This is rather important lesson. It is not enough to simply follow the actions of one person but to watch a spectrum of successful people. Where and when they are putting their money to work can give insight into their thinking of their particular business and its macro environment, Davidson’s “staff” comment is particularly useful as by watching them, you can essentially gain access to their thought process.
There have been many individual actions the past 14mos which I could have used as an example that provided significant valuable input towards making important investment decisions. This one in particular in today’s WSJ is about some one local who sold out near the top of an excessively priced market and is now coming back in by gaining control through the acquisition of defaulted mezzanine debt at a discount.
Part of good investment management practice in my experience is the identification of key individuals who by their business or investment histories clearly demonstrate superior knowledge of their respective markets. They maintain an exceptional fiscal and investment discipline throughout the business cycle. It is these individuals by their actions and comments from which investment insight is derived across domestic and global asset classes.
The process of gaining new insight is continuous. Here is simply one of those examples of an investor who understands the potential returns in his industry and from this knowledge knows in the simplest of terms when it makes good investment common sense to sell and when to buy.
In my simplest explanation to you, when ~200 such individuals are available to cover global investment trends, then this becomes a very powerful investment tool. It is very much like having these individuals “staff”. Besides the US the process monitors Korea, China, India, Europe, Australia, Russia and South America. The world is globally connected thru the business cycle. Insightful investors buy and sell in tandem.
The wealth of information that arrives each day is much too large to send. But, this piece is representative.
Scott Rechler is a good investor and one learns much from this capital allocation.
Scott Rechler sold his real-estate company—which grew from his family business to include New York office buildings—at the top of the market in 2007 for $4.1 billion. Now Mr. Rechler is positioning his new company to start buying again, the latest sign that some investors believe prices are at or near a bottom.
Mr. Rechler’s RXR Realty as early as this week will take control of 32 suburban office properties from CLK/Houlihan-Parnes, a partnership that late last year defaulted on nearly $30 million in mezzanine debt held by RXR. Mezzanine debt was often used by real-estate buyers during the boom to fill the gap between equity and the first mortgage. Now, during the bust, some investors are buying delinquent mezzanine debt as a maneuver to take control of the underlying properties in the event the property owner defaults. Often, they can take control of properties on the cheap.
The mezzanine debt gives Mr. Rechler the “inside track to acquire the assets,” said Brian Lee, a principal with Newmark Knight Frank on Long Island, N.Y. But the process can be messy. Even though Mr. Rechler said RXR has consensually agreed with CLK to ultimately take full ownership of the properties and will assume the existing first mortgage, CLK says it still hopes to keep its properties. “We’re trying to work it out,” said Craig Koenigsberg, the CLK investor most active in the portfolio.
If RXR is successful in acquiring the 32 Woodbury buildings, it would drastically increase its Long Island real-estate holdings, cementing Mr. Rechler as Long Island’s largest office landlord in a region where his company’s moniker already is associated with several trophy properties, including RXR Plaza. “Long Island’s obviously our strongest market,” Mr. Rechler said.
CLK’s space, known as the Woodbury Office Portfolio, is made up of smaller, less glitzy buildings. CLK said it would continue to own and manage more than 3.5 million “well-located” square feet on Long Island. The Woodbury office properties are in Nassau County in an “irreplaceable location nestled on the North Shore of Long Island in a place where a lot of people want to do business,” Mr. Rechler said.
While rents have fallen from the peak overall and vacancy is near 10%, Mr. Rechler is confident rents will eventually rise. He says that diversifying the portfolio provides a competitive advantage: He will be able to target small and midsize tenants uninterested in fancy space for now. But should those businesses need to upgrade or expand in the future, he can keep the tenant within his portfolio.
CLK paid $335 million in 2005 for the Woodbury Office Portfolio. The price tag, which some locals say broke records, ushered in a buying frenzy as investors used high-debt deals to bet on rising rents. As the sales market sizzled, some estimate that half of the Island’s notable addresses changed hands. In 2007 alone, 62 Island office buildings traded for $1.8 billion, according to Real Capital Analytics. But sales slowed with the downturn: Last year, eight Island buildings went for just $39 million.
No one expects Mr. Rechler’s deal to jump-start sales: The financial and mortgage tenants that rushed to ink deals during the boom are vacating, leaving plenty of empty space. Competition for new deals is fierce, so much so that tenants can demand as much as a year free of rent for longer-term leases.
That, along with the tight credit markets, has made refinancing loans nearly impossible. More than 20% of Nassau County’s commercial loans are in special servicing, or getting extra attention to rework the debt, compared with 11.1% nationwide, according to Trepp LLC.
“A lot of these owners are faced with the choice of double down and put more equity in the property or just basically hand back the keys to the lender,” said Dan Fasulo, a managing director with Real Capital Analytics. “Their equity’s wiped out, they have near-term refinancing issues with the loan. There’s just no way to make it work in a new paradigm.”
The Rechler name has dominated Long Island real estate for half a century. William Rechler, Scott’s grandfather, helped build an industrial park. The company, Reckson Associates Realty Corp., went public in 1995. In early 2007, Reckson was acquired for $4.1 billion, by SL Green Realty Corp. Mr. Rechler then partnered