Private Possibilities While it might be more work, it’s much easier for the company in the long run to expand and grow its portfolio through portfolio acquisitions than by individual assets.
In Kushner’s view, apartments shouldn’t be subject to the whim of the stock market. “Apartments are something that have to be run very cost effectively with a long-term view,” Kushner says. “It’s not a get-rich-quick type of business. ? The stock market wants to see quarterly results, which is not consistent with apartment growth and building values.”
As a private company, the organization has the flexibility to continue to do all the things that it is doing – such as taking risks, paying a little more for a deal, development and acquisition, says Mort Holliday, managing director of Sonnenblick-Goldman Co., a national real estate brokerage firm specializing in the financing and sales of real estate companies. “He’s one of the most active developers I know. He wouldn’t have the same flexibility if Kushner Cos. was a public company.”
And Kushner feels the same way. By remaining a private company, Kushner can be aggressive with a project and recognize the long-range value that might not be an immediate payoff. “I’ve bought things a REIT couldn’t touch because Wall Street would kill them. They were some of my best buys,” he says. One example is Elmwood Village, where the company paid a 6 percent cap rate for the 666-unit complex in Elmwood Park, N.J. “A REIT would have gotten its head chopped off for touching such a thing,” he says. “By doing extensive capital improvements, cutting costs and increasing rents, we probably turned that 6 percent cap rate into a 30 percent cap rate within 24 months.” A REIT does not have the luxury of waiting 24 months before turning a profit on a complex.
And while Kushner likes to think of himself as a cautious buyer, he recognizes the need to be aggressive in terms of acquisitions. To compromise, the company is conservative in the way it structures financing for the acquisitions by locking in long-term fixed rates. “I don’t mind being a little bit aggressive on price if it’s a well-located portfolio or property,” he says. In general, the company takes “long-term, self-liquidating debt and amortizes the debt heavily. I like to fix my rate and amortize my debt to zero,” he adds.
What’s Attractive? When it comes to acquisition strategy, Kushner’s top priority is no different from any other real estate company – location. What makes a good location depends on several factors, from access to highways and jobs to the area’s economic situation.
But the company also looks for other elements in a portfolio or property. For instance, the company wants a project that is under-performing and in need of value-added services. It also looks at projects with deferred maintenance. In these types of situations, Kushner Cos. can make repairs and capital improvements, add some services and then raise the rent.
The company is currently entering into a contract to purchase a property of more than 600 units where it sees the potential for a $200 per month raise in rent per unit.
Before making improvements, the company does an economic analysis to see what the market can bear. The company’s basic program is to make sure that buildings are generally sound, and the roofs and mechanicals are intact. Usually, the company will upgrade the kitchens, bathrooms and windows, as well as improve the cosmetics of the property.
In addition to location and property type, Kushner Cos. also looks at the existing management team to make sure the management team is up to par. If the management team is not effective, the company will probably pass on the opportunity, says Kushner.
As for WNY, it had all the characteristics for which the company was looking. By the end of the year, the company plans to finalize the full integration of the properties and personnel into the company.
The company is now looking in the Virginias and Carolinas, but wants to be in areas with similar market conditions and barriers to entry as New Jersey. “We’d like to fill in the dots,” says Kushner, “between Florida and where we are now.”