New York City and the surrounding area are considered to be one of the most resilient real estate markets in the United States. The limited access to the region due to bureaucratic regulations and a lack of construction space paired with the increasing employment levels in an array of economic sectors, the positive recovery and expansion stage and the overall unique allure of the region provide the real estate sector the ‘winner takes all’ scenario.
KITE Invest: Within this prime location how has Massey Knakal and River Oak etched out a competitive base and distinguished themselves as frontrunners in the dynamic New York metropolitan region?
MKRO: They have done it in three ways. One, River Oak has bought, improved and sold over $900 million worth of real estate on the East Coast in the last 15 years. Their returns to their investors have averaged, good times and bad, 13% (net IRRs).
Two, Massey Knakal has sold $41 billion worth of real estate in New York City for clients over 25 years. In investment sales of $25M and under they are the #1 firm for the last ten years. They therefore have a pipeline of deals in this space that no one else in New York comes close to.
Third, they are bringing organized capital to a space that is too small for the big funds ($25M and under) and somewhat large for the individual investor. There are many, many deals in New York that need this kind of ‘smart money’’ – and it is not easy to find.
KITE: The partnership of Massey Knakal, a diversified real estate company with over 4,500 transactions and an aggregate value of over US$17 billion, and River Oak, a niche-focused real estate investment manager with over 40 projects invested and an aggregate value of approximately US$900 million, offer potential fund investors a combined 130 years of experience, structuring and market expertise. The MKRO fund partnership offers investors lengthy experience. Please shed light on the origins of the partnership and the current and prospects for future collaborations.
MKRO: The partners at Massey Knakal (Paul Massey, Bob Knakal and James Nelson) and the partners at River Oak (Steve DeNardo and George Yerall) found each other because both groups had many relationships in common, both had decades of experience in New York real estate and their strengths are complementary. It is because of RiverOak’s deep fund management experience and Massey Knakal’s relationships and street-by-street knowledge of New York City that bodes well for the next fund (MKRO II) and for lots of work together in the future.
KITE: How does MKRO I differ from other real estate investment funds?
MKRO differs in two important ways: one, the fund focuses on deals in New York City that are too small for the big funds and perhaps too large for many individual investors ($25M and under). Second, because of the many decades of experience the partners have, their combined knowledge of the neighborhoods and of the managers who will improve the properties means it will be hard for investors to find a better team to invest with today in New York City.
KITE: Investment in the real estate sector albeit individual family homes or investment funds is a much less volatile than the daily ups & downs of the stock market economy. The real estate sector offers a slower and less risky return on investment, and is subject to investment cycles. In this regard, how does/did the global economic recession affect the real estate sector, and in particular the New York metropolitan region?
MKRO: Let me focus on New York. Residential property values in New York fell about 20% in Manhattan during the Great Recession. In addition, a lack of construction during the past five years has resulted in lack of supply in all sectors we will invest in, especially office, residential and retail. I’ll give you a quote from the Real Deal magazine in April 2014:
Corcoran Sunshine’s Mack said it [new construction] will still not be enough to meet the demand.
“In Manhattan, we are expecting over 10,000 new condominium units to enter the market within the next three years,” she said. “This annual average of 3,300 units is higher than the past few years, but it’s still a far cry from the more than 8,000 units that were introduced in 2007. The market needs more inventory across all price points..”
3,300 units/year is pathetically small compared to the demand for apartments in New York.
KITE: What are some of the principal qualities that MKRO I offers to investors? What are some of the components of investors that MKRO I is looking for?
MKRO: The ideal investor for MKRO is one who likes New York as a place to keep their money secure, who knows enough to know that buying your own property in New York is incredibly competitive, and is willing to trust a team that knows how to identify properties where there is opportunity for much better yield than many alternatives. And I am looking for folks I can tell why I love New York so much I have decided to raise my family there!