As third-generation entrepreneur Jared Kushner strategically rebuilds the family firm’s portfolio, his preferred flight plan aims below the radar of so many competitors navigating the high-altitude apartment sector.
Armed with a deep network of industry connections and financial partners, Kushner stealthily targets complex off-market mega-deals for properties that aren’t exactly jet-set destinations. The company aims for distress-ridden class-B apartment communities in second-tier cities such as Toledo and Baltimore.
Even amid tough conditions, the Kushner crew has managed to avoid bidding wars on a couple of critical deals. That pair of strategic strikes has helped expand the diversified company’s rental housing portfolio by more than 11,000 units during the past year or so.
In August, Kushner bought 5,500-plus units in and around Baltimore through a complicated transaction refinancing past-due debt with $371 million in fresh Freddie Mac financing–and netting a 25 percent ownership stake for a Kushner-led investment group.
“We do get shown a lot of transactions, mostly off-market,” Kushner relates. “And we’ve secured great financing packages on everything we’ve bought so far.” And Kushner operatives are destined to capture even more territory in coming weeks and months, he promises.
Friends and Family
If this heady growth isn’t ambitious enough for someone barely into his fourth decade, taking down mega-transactions without attracting a lot of competition is just as much of a challenge for someone boasting Kushner’s pedigree.
After all, his father-in-law is Donald Trump–not to mention that his father Charles is a New York-area real estate tycoon who landed in federal prison in the wake of a high-profile corruption scandal. But Jared has plenty of other resources to draw on, including considerable experience for someone his age–plus a lot of help from the company’s veteran pros including multifamily operations specialist Mel Scheinerman.
Kushner Cos.’ apartment portfolio had soared to 25,000-plus units in the mid-2000s, a couple of years before a very well-timed $1.9 billion portfolio sale of the company’s remaining 16,800 units was struck on the eve of the Great Recession.
Now as the rebuilding continues, old and new relationships with owners, investors, lenders, intermediaries and others help Kushner source off-market opportunities–and close quickly at favorable financing terms. Kushner is contractually prohibited from discussing details of the Baltimore portfolio investment, but confirms that this opportunity came to the team off-market via relationships.
Beyond operational and deal-sourcing capabilities, Kushner’s ties to deep-pocketed institutional capital managers help leverage its banking relationships.
That institutional backing and the financial “horsepower” it brings is critical in securing debt at the best rates and terms, observes Jordan Ray, managing director with Mission Capital Advisors, which arranges financing for investors and sells distressed debt on behalf of lenders. Hefty equity resources also allow these joint ventures to close value-add and opportunistic deals more quickly than lesser-heeled suitors–another key factor winning deals in today’s highly competitive environment, Ray adds.
It also helps from the cost and control perspectives that Kushner can install its in-house property management group, and tap its internal construction expertise for rent-boosting capital improvements. As the CEO stresses, large distressed portfolios are bound to require some extensive renovations–as was absolutely the case with the nearly 4,700-unit Midwest portfolio Kushner acquired the previous summer with partners Square Mile Capital and Apollo Property Management.
The venture paid about $72 million for that 12-community portfolio–approximately half the balance of the debt previous ownership owed to the Prudential Financial affiliate that was foreclosing on the collateral. The properties had an average 75 percent occupancy rate at the time of sale. After around $15 million in capital expenditures and an extensive retenanting effort, the portfolio’s occupancy rate is back up to the mid-90s.
“It was a lot of construction and a lot of evictions,” Kushner says. “But the communities now look great and the outcome has been phenomenal.”
Both portfolio deals illustrate Kushner’s focus on particularly large transactions, with an emphasis on secondary markets likely to see decent economic recovery–but little if any new competition at the “workforce housing” price point any time soon.
“We have demonstrated our ability to execute large transactions, which we combine with one-off deals for properties that offer attractive synergies to our operations,” Kushner relates.
While he likewise aims to tap the in-house Westminster Management affiliate to operate properties internally, Kushner has no interest in growing the management portfolio on a third-party basis. He prefers to install Westminster under “select” circumstances that help partners, or where Kushner has an eye on an eventual ownership stake.
The official announcement of the Baltimore-area portfolio investment states that Westminster will manage those communities. Other media reports (to which Kushner declines to respond) also have the management group taking over operations of another 2,800 units owned by the portfolio’s other partners: Rockpoint Group and Sawyer Realty.
And chances are Kushner operatives will come across quite a few other such opportunities ahead. Conduit special servicers and banks are actively disposing of distressed assets today–rather than continuing their former “extend and pretend” strategies, says Mission Capital principal David Tobin.
Indeed as research company Morningstar Inc. calculates, nearly 650 distressed and potentially distressed conduit loans secured by multifamily properties–with collective unpaid balances exceeding $14 billion–were in special servicing at the end of July.
But as Jared Kushner scours East Coast and Midwest markets in search of more sub-radar opportunities, he’s not quite ready to start training the famous real estate family’s fourth generation–one-year-old daughter Arabella. But eventually she seems bound to get quite the education from both her father and her mother, Ivanka Trump.
Brad Berton is a freelance writer based in Portland, Ore