Investment opportunities in resurgent city neighborhoods will be a prime target for the new real estate fund about to be launched by long-time owner/developer Steven Kessner.
That should not come as a great surprise to anyone familiar with the role Kessner (http://people.forbes.com/
Interestingly, Kessner, who sold most of his Upper Manhattan portfolio to London-based Dawnay Day for $225 million in 2007, had to overcome virtually the same recession-related problems and obstacles now facing New York’s residential developers.
Following the real estate crash of the late 1980s, there was no market for condos, and many banks and Savings & Loans were failing and unable to convert short term construction loans into longer term debt. Fortunately, Kessner’s R.E. Group decided to manage its modest Manhattan rental portfolio prudently and weathered the storm by becoming a white knight willing and able to take over buildings that were in foreclosure.
By 1994, with over 20 buildings, Kessner (http://www.stevenkessner.org) and his R.E. Group had most of their problems behind them and were positioned for growth. They began acquiring additional properties, and by the end of the decade, Kessner owned and operated a portfolio of over 60 buildings.
Unfortunately, all of the apartment houses acquired by the Kessner group were highly distressed, partially to fully vacant, and riddled with violations. Amazingly, without any public assistance and mostly without bank financing, every building in the portfolio was ultimately rehabilitated and violations were systematically abated. But all was not rosy. During this chaotic period in the middle of the decade, the housing market was set by Section 8 and most new tenants were subsidized by HUD, many through the Emergency Assistance Rehousing Program (EARP), with welfare picking up the tenant’s portion of the rent. This tenancy placed a lot of stress on the buildings and created a torrent of new violations.
It wasn’t until the end of the decade that the tide started to shift and rental apartments were filled by working people. As more capital and bank financing became available, residential buildings became more stable.
Toward the end of the turbulent 1990s, Kessner’s R.E. Group positioned itself for additional growth by refinancing nearly every building in its portfolio. In 1998, the company broke historic new ground with the first major Wall Street conduit financing in East Harlem, a 30 building package with Nomura Securities. This was followed by several other smaller packages, with other lenders, over the next few years.
Even though it maxed out on the amount of financing it could borrow - - because cap rates were relatively higher in East Harlem than elsewhere - - the loans had tremendous cash flow coverage. As a result of these financing opportunities, Kessner’s group built up a substantial pool of working capital which enabled it to accelerate reinvestment in its buildings. Again in 2004, with the help of bank refinancing, Kessner (http://www.stevenkessner.com) poured significant reinvestment capital into his portfolio, which now had emerged as a leading trend-setter in the Upper Manhattan marketplace.
Widely recognized for his broad knowledge and intuitive sense of the marketplace, Kessner has been involved in all facets of real estate, particularly development, construction, property management, financing and investment. He presently owns over a dozen multi-family and commercial properties in Manhattan as well as development sites in New York and Westchester County. His eagerly anticipated real estate fund will target a wide range of investment opportunities, from traditional residential and commercial real estate to problem properties to distressed debt.
