East End Capital is fast becoming a case study in how to stay ahead of the competitive New York City real estate market. The firm targets Class A value-add properties in emerging submarkets, often in off-market settings.
The firm was an early big-name investor in the Garment District, which has since been touted as the next submarket to watch. “East End capital has established itself as an ‘early entrant’ buyer in New York. While the rest of the opportunistic world was trying to buy in Midtown South, they found less competition and strong returns in the Garment Center,” noted Will Silverman, managing director at Studley.
East End’s pitch is simple: In a world of quantitative easing, the firm is trying to create value that will be unaffected by the market’s twists and turns. “We’re creating NOI through aggressive asset management strategies,” co-founder Jonathon Yormak told REFI . “We’re targeting under-rented and under-performing properties in micro-markets and we’re producing outsized growth,” he said.
Next, the investment firm plans to target Downtown Manhattan in anticipation of the new Fulton Street retail corridor there. It now has a 550,000 -square-foot office building in the Financial District under contract for around $170 million, or $309 per square foot. Other areas of interest include the spillover from mega-redevelopment project Hudson Yards and Chinatown’s Canal Street. “As SoHo shifts south and Tribeca shifts north, the connection between the two will become more desirable,” co founder David Peretz said.
East End Capital was founded by Broadway Partners alumni Yormak and Peretz, who left Broadway soon after the firm became one of most renowned victims of the financial bust. Broadway, one of the most prolific buyers in the boom, lost several over-leveraged properties in the fallout, including the John Hancock Tower in Boston.
So far, Yormak and Peretz have shied away from the big-buck deals that Broadway fell victim to, preferring instead to focus on acquiring properties that are broken, either physically or in terms of capitalization.
East End has been working closely with GreenOak Real Estate, an investment firm founded by three former Morgan Stanley execs. Together, the partnership has acquired three office buildings and one mixed-use project. The joint venture is now closing out a deal to sell two mixed-use properties in SoHo for twice the amount that it acquired them for, according to published reports. East End acquired the properties at 21 and 25-27 Mercer Street for $18 million last year, and is now in contract to sell them for $34 million to a foreign buyer.
At present, East End Capital is working on a deal-by-deal basis, but eventually plans to start a general partnership fund-potentially as soon as the end of 2014. Yormak and Peretz acknowledged that it is still difficult to be a first-time fund raiser in the present environment. “Capital is still interested in brand names, which continue to see the lion’s share of allocations,” Yormak said. “We’re filing investment memorandums, auditing all of our returns. We’re running the business entirely as if we’re already an institutional fund manager, to prepare. So when the day comes to raise a fund, we’ll be ready.”