What weve seen recently in the past ten years is
a change in the way we work, a change in commerce and a change
in demographics, says Dwight Angelini, founding and
managing partner of Longpoint Realty Partners. Each of
those has an impact on real estate.
Over lunch in New York, Angelini and Reid Parker, founding
partner with Boston-based Longpoint, outline their plans to
profit from reurbanization, a growing trend in property
investment. Real estate has to change and become more
culturally relevant, and thats driving a lot of the way
we think about reurbanization and redevelopment, Angelini
Launched last December, Longpoint comprises four former
executives from Boston-headquartered TA Associates Realty.
Angelini is building on the strategy he used at his previous
employer: buying secondary assets and repositioning them. At a
big firm like TA, whose assets total roughly $12 billion, it
can be tough to capture smaller but more dynamic secondary
opportunities. So Angelini, Parker and founding partners Nilesh
Bubna and Robert Provost decided to launch a firm dedicated to
Demographic shifts have breathed life back into the cores of
U.S. cities, forcing local governments to update zoning rules
and improve public transportation. In the wake of the
200809 financial crisis, younger workers sought
city centers with higher job growth, and empty nesters
left the suburbs to rejoin the action downtown. This migration
has created an opening for real estate investments that find
new uses for old buildings.
Longpoint aims to turn the dusty remnants of the old economy
into something that Millennials want. That could mean
repositioning a large mall the emblem of 1990s retail
as a mix of stores, restaurants and apartments.
On the firms radar: any midsize industrial, retail,
office or apartment building in a rapidly growing neighborhood.
Industrial assets are a key focus area for us,
Parker says, adding that Longpoint seeks links in the supply
chain that directly serve the local community, typically
distribution centers or small-parts manufacturers.
Were looking at the last mile of distribution and
finding interesting ways to reposition other industrial assets
to make them more desirable.
Targeting the right geographies is critical.
Were focused on areas with positive net migration,
so were looking at cities in the Northeast, or Florida,
or places like Nashville that are attracting younger
demographics and seeing strong job growth, Parker
explains. He and Angelini shy away from areas like Kansas City,
Missouri, and other parts of the Great Plains, which they cite
as not yet resilient enough to roll with the ups and downs of
the global economy.
From January to late November 2015, private equity firms
raised a record $96 billion for
real estate, versus $85 billion for the same period in
2014, according to London-based research firm Preqin. Some $61
billion of the 2015 total is focused on U.S. investments.
Repositioned properties typically yield better returns than new
ones, in part because they are already built and have zoning
and critical infrastructure like water lines in place.
Investors can also buy these buildings at a discount if the
current owner is selling short or has foreclosed.
Middle-market players like Longpoint face competition for
deals in reurbanizing hot spots. New York, Philadelphia and
other cities with mature centers probably have a history
with firms like $225 billion megadeveloper
Brookfield Asset Management. Toronto-based Brookfield is
the global leader in ownership of office buildings and one of
the largest holders of retail space in the U.S.; it also runs
expansive industrial and multifamily real estate groups. Few
U.S. assets come to market without getting at least a passing
glance from the firm.
Brookfield is constantly looking to add value, whether that
means converting office space it already owns into mixed-use
buildings, picking up new assets or allocating to new
geographies. We had avoided investing in downtown LA for
20 years, for example, until 2006, when we recognized the
urbanization trend and downtown LAs potential and began
to make significant investments there, says Richard
Clark, senior managing partner and global head of real
Longpoints Angelini thinks theres room for
everyone. Many closed-end real estate funds launched a decade
ago are nearing the end of their life cycles with properties
they need to sell, he notes. With that in mind, Longpoint will
be seeking distressed assets that can provide investors with
smaller, niche opportunities likely to get passed over by the
big firms. In a portfolio, such investments can complement
exposure to large players like Brookfield.
Angelini and Clark also observe that reurbanization tends to
ripple out from a citys core, creating opportunity in
areas that arent quite the suburbs but not quite
downtown, either; think of the Bronx in relation to Manhattan.
A recent study from the Federal Reserve Bank of
Philadelphia shows how this ripple effect works. Over time,
as people move back into urban centers, its possible
to break up a city into areas that are gentrifying and
gentrifiable, based on factors such as median income or the
presence of a university or a job center. Redevelopers and
investors can use these segments like a playbook to find their
These patterns are familiar to Darell Schmidt, managing
partner and co-founder of Denver-based Allante Properties,
which has been developing real estate in its hometown for more
than two decades. Twenty years ago you didnt really
have much downtown, Schmidt recalls. It was mostly
office space and a lot of breakfast places.
Then Denver built a convention center and put more
backing behind local professional sports teams like the
Colorado Rockies, which have a stadium downtown. Those projects
brought a lot of people into the city, despite its distance
from the outer suburbs. People started saying,
Were spending a lot of time down here and then
driving an hour or more home, Schmidt says.
Thats when the movement started.
As demand grew, Denver had to adapt. Once the city voted to
rezone for mixed-use spaces in 2010, reurbanization took off,
Schmidt recalls. Were now starting to see people
move here without a job because they think they can find one
easily, he says. Thats a big
Once reurbanization gains steam, it can have a significant
upside, Brookfields Clark asserts: Investors who go
into reurbanization and redevelopment are doing it because they
expect the yields to be greater than ground-up development or
investing in other types of real estate. Its
important to partner with a firm that understands the building
stock and how to maximize it, he stresses.
Allantes Schmidt agrees. The key is forecasting
possible dips into our models so that we have great cash flow
while the market is high and still maintain acceptable levels
if theres a dip, he says. But those dips are
temporary. The local economy is very resilient; sometimes you
might just have to be patient.