Edwin Cohen: "Deals Are Getting Done"General Real EstateUpdated on Aug 9, 2010 View more like this | Visit ENGLEWOOD, NJ | Contact Caryl Communications, Inc. |
The Prism Principal Talks about Current Market Conditions-and Choosing the Right Investment Partner
What are you seeing in the market right now-what are the prevailing trends?
Deals are starting to get done. The market has not been great, of course, so the fact that deals are now getting done is a good sign. And there continue to be investment opportunities because markets, as we have experienced recently, tend to bring out certain value investments.
For example, we just re-acquired an asset we previously owned, 399 Jefferson Rd. in Parsippany, which was Prism's first acquisition in 2003. At the time, the 180,000-square-foot office building was fully occupied by the Medco division of Merck, which three years later moved those jobs out of state. HSBC needed a data processing/disaster recovery operation, and this location made sense.
HSBC planned to invest a quarter of a billion dollars in the asset, so leasing the building didn't make sense for them, and we sold it to them four years ago. HSBC spent three of those four years finalizing their plans-they gutted the building, got approvals to expand, but a year ago abandoned the project and put the building back on the market. They asked if we wanted to buy it back, and after a year of negotiations, we reacquired it.
As it happens, we are talking to two potential tenants to lease the entire building. We had already talked to someone considering a full-building purchase, and we just received an RFP for a user for approximately half of the building. The bottom line is that there are always situations where one can create value in a marketplace like the one we have been experiencing. What we haven't seen yet, however, is a wholesale liquidation of assets as had been the case in previous meltdowns. We have not seen a wholesale write-down of assets by the banks.
Why do you think that's the case?
Once they start writing the assets down, the banks have to show the reduced numbers on their books. While they still hold it on their books, they don't have to account for the loss. Once they start accounting for all these losses, other factors come into play.
What's Prism's role in this-or any-market? What is the firm's modus operandi?
We are value-added asset players. We are not looking to "clip coupons" to buy into long-term stable returns. We want to buy assets that are undervalued where we can both add value and participate in organic value recovery, and then sell those stabilized assets at competitive capitalization rates. That's our job.
In all of Prism's acquisitions, you do it through partnerships. Who or what do you look for in a partner?
Different groups-funds, high-net-worth individuals, an assortment of others. In general, one would like to invest with partners who we know believe in our expertise as the operating partner-that we are the people "on the street." And, obviously, the more "sidewalk" you can get, the better the partnership is.
What's more important in this market, the property or the partner?
They're both equally important, regardless of market. Property is paramount, obviously-you don't have a partnership to discuss if you don't have a property. But one of the things we do as each opportunity presents itself, one of our most important parts of the acquisition, is to define in our own minds who would be best to partner up with. There are different partners with different requirements based upon the nature of their investment strategies. Is it a value-add? Is it a permutation of the above? Over time, I believe we have been able to manage the process effectively by picking the right partners. We will continue to do so.
So a particular kind of partner works best for a particular kind of property-it's that much of a fine-tune?
Yes, it is, because some are looking for longer-term holds than others. Others are looking for higher levels of return and, therefore, are willing to take higher levels of risk and buy into vacancy vs. just buying into income. Yes, the answer is, quite definitely, depending upon the nature of the asset, that's how you really fine-tune which type of partner that would be most suitable.
On the flip side, what should investors look for in a partner?
As I mentioned, the ideal is to look for those people who know the market front and backwards, know it cold, who have a reputation within the industry from an efficacy standpoint. That's critical to the "money men," in allying their flag with that particular partner "on the street".
What's next-what do you see happening in the market in the months ahead?
Until a few months ago, the marketplace was almost in a state of paralysis. Now, as I mentioned at the outset, we're finally seeing leasing deals getting done. Some large transactions are getting done, albeit not at rental rates that one would have predicted a few years ago. Market rates are flat, but at least we're starting to see those companies that have been holding off their decisions for a long period of time finally coming to bat and making those decisions and signing deals.
For example, we recently closed a lease with UPS for 120,000 square feet in Wayne. We also see increased activity at One Harmon Plaza in Secaucus, and we recently had 100,000 square feet of leasing activity at BroadAcres Office Park in Bloomfield. We are seeing some positive signs, but until we start seeing job creation, we're not going to really make a major dent in the available inventory. A lot of what we're seeing is horizontal movement.
There is cause for optimism, however. I am not necessarily optimistic about market rates rising dramatically soon, but I am optimistic due to the fact that deals are actually being concluded.
What are you seeing in the market right now-what are the prevailing trends?
Deals are starting to get done. The market has not been great, of course, so the fact that deals are now getting done is a good sign. And there continue to be investment opportunities because markets, as we have experienced recently, tend to bring out certain value investments.
For example, we just re-acquired an asset we previously owned, 399 Jefferson Rd. in Parsippany, which was Prism's first acquisition in 2003. At the time, the 180,000-square-foot office building was fully occupied by the Medco division of Merck, which three years later moved those jobs out of state. HSBC needed a data processing/disaster recovery operation, and this location made sense.
HSBC planned to invest a quarter of a billion dollars in the asset, so leasing the building didn't make sense for them, and we sold it to them four years ago. HSBC spent three of those four years finalizing their plans-they gutted the building, got approvals to expand, but a year ago abandoned the project and put the building back on the market. They asked if we wanted to buy it back, and after a year of negotiations, we reacquired it.
As it happens, we are talking to two potential tenants to lease the entire building. We had already talked to someone considering a full-building purchase, and we just received an RFP for a user for approximately half of the building. The bottom line is that there are always situations where one can create value in a marketplace like the one we have been experiencing. What we haven't seen yet, however, is a wholesale liquidation of assets as had been the case in previous meltdowns. We have not seen a wholesale write-down of assets by the banks.
Why do you think that's the case?
Once they start writing the assets down, the banks have to show the reduced numbers on their books. While they still hold it on their books, they don't have to account for the loss. Once they start accounting for all these losses, other factors come into play.
What's Prism's role in this-or any-market? What is the firm's modus operandi?
We are value-added asset players. We are not looking to "clip coupons" to buy into long-term stable returns. We want to buy assets that are undervalued where we can both add value and participate in organic value recovery, and then sell those stabilized assets at competitive capitalization rates. That's our job.
In all of Prism's acquisitions, you do it through partnerships. Who or what do you look for in a partner?
Different groups-funds, high-net-worth individuals, an assortment of others. In general, one would like to invest with partners who we know believe in our expertise as the operating partner-that we are the people "on the street." And, obviously, the more "sidewalk" you can get, the better the partnership is.
What's more important in this market, the property or the partner?
They're both equally important, regardless of market. Property is paramount, obviously-you don't have a partnership to discuss if you don't have a property. But one of the things we do as each opportunity presents itself, one of our most important parts of the acquisition, is to define in our own minds who would be best to partner up with. There are different partners with different requirements based upon the nature of their investment strategies. Is it a value-add? Is it a permutation of the above? Over time, I believe we have been able to manage the process effectively by picking the right partners. We will continue to do so.
So a particular kind of partner works best for a particular kind of property-it's that much of a fine-tune?
Yes, it is, because some are looking for longer-term holds than others. Others are looking for higher levels of return and, therefore, are willing to take higher levels of risk and buy into vacancy vs. just buying into income. Yes, the answer is, quite definitely, depending upon the nature of the asset, that's how you really fine-tune which type of partner that would be most suitable.
On the flip side, what should investors look for in a partner?
As I mentioned, the ideal is to look for those people who know the market front and backwards, know it cold, who have a reputation within the industry from an efficacy standpoint. That's critical to the "money men," in allying their flag with that particular partner "on the street".
What's next-what do you see happening in the market in the months ahead?
Until a few months ago, the marketplace was almost in a state of paralysis. Now, as I mentioned at the outset, we're finally seeing leasing deals getting done. Some large transactions are getting done, albeit not at rental rates that one would have predicted a few years ago. Market rates are flat, but at least we're starting to see those companies that have been holding off their decisions for a long period of time finally coming to bat and making those decisions and signing deals.
For example, we recently closed a lease with UPS for 120,000 square feet in Wayne. We also see increased activity at One Harmon Plaza in Secaucus, and we recently had 100,000 square feet of leasing activity at BroadAcres Office Park in Bloomfield. We are seeing some positive signs, but until we start seeing job creation, we're not going to really make a major dent in the available inventory. A lot of what we're seeing is horizontal movement.
There is cause for optimism, however. I am not necessarily optimistic about market rates rising dramatically soon, but I am optimistic due to the fact that deals are actually being concluded.
