As investors, we see incredible value often upon paths less trodden, those brimming with untapped potential and hidden gems. These are what we fondly term as "special opportunities" — unique, often fleeting chances that promise not just returns, but stories we will be recounting for years to come.
We know that we are not a rigid organization where we have a mandate just to do certain things and we do not veer from that. We are real estate guys in the old-fashioned sense of the word. When people ask what we do, we keep it simple and say we are in real estate, because we are not just focused on one type of real estate like industrial or multifamily, or warehouses with certain parameters.
Indeed, you could call us special opportunities real estate guys or something along those lines. That means we look for opportunities in real estate across broader areas, especially in multifamily and industrial warehouse spaces where we have had great success. We have also had great success in office space in the past and have done some hotel deals as well.
Understanding bricks, mortar, and the relationship between value, rents, income, and expenses on a physical building is what real estate guys do. It is about understanding the land and the building, and how income and expenses work together to create what we do; essentially understanding from foundation up.
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What Exactly is a Special Opportunity?
A special opportunity might not fall into a specific bucket but fits in with our expertise and knowledge of value. It is like walking through a store and suddenly you see clothing you love or shoes you love but they are mismarked. The price is wrong and you get a bargain.
This represents what special opportunities mean in our context: acquiring something at mispriced value resulting in excessive gain upon correction or execution of business plan. This might be due to factors such as upcoming highway construction, zoning changes or information about tenant demands which others are not privy to leveraging experience knowledge relationships towards oversized returns.
It could be anything - perhaps even an office building with the potential for substantial profit over the next 5-10 years. Success often lies in the willingness to undertake the necessary steps, to transform seemingly undesirable prospects into lucrative ventures. This signifies the essence of special opportunities that exist beyond conventional scopes, allowing for the acquisition and creation of tremendous value.
We often run into special opportunities where we know something that somebody else does not, or we have a relationship that somebody else does not. So, distress could be a special opportunity, but distress could also be its own bucket and there are real estate shops that just focus on distress.
Six Forks: Raleigh, North Carolina
An example of a Special Opportunity investment we have made is a deal we call ‘Six Forks’ which was an approximately 150,000 square foot office building in Raleigh, North Carolina. The seller was a hedge fund out of California.
The state health department leased the entire facility and had about 18 months left on the lease. Normally, owners would not sell an office building with only 18 months left on a government lease unless they had a reason to do so. In this case, their fund was closing and they needed to wind it down so they had to sell.
We were able to buy at a very high cap rate because of the short lease terms and because we were in the market investing in multifamily at the time right around the corner. We knew the market and we knew that there was nowhere for the tenant to go upon lease expiration given our knowledge about that market.
At the time of our acquisition, there was talk of the government building a whole new complex nearby to house all locally situated government tenants. But we knew that, with government, the bigger the project, usually less likely it is going to happen.
Making that call we decided to buy the asset and were able to negotiate the acquisition at around a 12% cap rate which was a very high yield even by standards at that time. And sure enough, our understanding of how government works proved true. The major complex did not come to fruition and the tenant renewed on a new seven-year lease which we immediately sold to a REIT that specialized in government tenants at market cap rate, with the result being a home run for our investors.
Office Deal: Newark, New Jersey
Another Special Opportunity example involved an office building in Newark, New Jersey, where one of the two main tenants had publicly announced their intention to move to a new location. However, by considering the economic implications and possessing a thorough understanding of the marketplace, we were able to make a strategic acquisition.
The initial announcement of the tenant's relocation ended up not happening, leading to significant profit gains for our team upon re-negotiating the lease.
Public knowledge, when viewed uniquely, can lead to profitable real estate investments that others might miss. Thorough research, understanding, and decisive action are key to seizing these special opportunities and achieving financial success.
It is an adjacent process to everything else. We particularly like the term "adjacent" because it highlights how this occurs simultaneously with all our other work, such as evaluating deals, engaging with brokers, and performing underwriting tasks.
It is not an isolated effort but rather something that emerges through our routine activities and relationships within the industry.
Why Keywords Matter When Seeking Special Opportunities
When examining opportunities, we pay close attention to certain keywords that help us understand why a property is being sold. For instance, if we come across a fund based on Sixth Avenue in New York looking to sell their properties they bought around 6 or 7 years ago, it becomes apparent they are in the phase of winding down. Some of this information might become quasi-public or known within industry circles.
While we do not exclusively hunt for special opportunities, our approach allows them to find us, the old saying “luck is what happens when preparation meets opportunity,” rings true in our efforts. Our networks play a crucial role here—it is about having our radar set up correctly so when these chances arise out of ongoing discussions and relationships within the sector; we are ready and able to identify and evaluate them effectively.
Special Opportunities and Asset Classes
We have invested in multifamily, industrial, and office spaces, and we are always exploring other asset classes under the special opportunities category. Certainly, we have looked into various asset types like medical offices, self-storage units, data centers, and hotels and have previously invested in hotel ventures and data centers. However, we believe it important not to stray too far from our core expertise.
Success comes from sticking to what we know rather than changing our entire business model. That said, we are well-versed in all aspects of real estate investing and are willing to explore adjacent sectors that present good value without fundamentally altering our business operations.
CMBS+CLOs
We have also ventured into non-performing notes including tranches of CMBS bonds (Commercial Mortgage-Backed Securities) and CLOs (Collateralized Loan Obligations). These are avenues through which properties’ mortgage loans are dissected and repackaged into different pieces that investors can purchase at discounts. This approach requires a comprehensive look into the underlying real estate values but certainly counts as a special opportunity if handled correctly.
On rare occasions, buying notes directly from banks has proved beneficial; one notable instance was during the Great Recession when we purchased a note back on an office building at approximately $0.20 on the dollar - an exemplary success story by any standard.
Special Opportunities: The Final Word
Special opportunities thus stand as asterisks in our operations – they represent those unique instances outside our regular investments that sometimes yield greater returns than our conventional avenues but are not areas we stake our careers on regularly.
Whether it is seizing mispriced assets like finding underpriced luxury goods in a store, capitalizing on impending urban developments unknown to most or navigating through complex financial instruments such as CMBS bonds and CLOs; each special opportunity strengthens our belief in the power of strategic foresight coupled with actionable intelligence.
POSTED BY
Jeffrey Greenberg
Founder and Managing Partner
Jeff has over 30 years and cumulatively over $2 billion investment experience in commercial real estate for his 3rd generation family office.
'The best way to make money in real estate,' he says, 'is to make it slowly.'
While having a focus on mid-large size, Class A/B industrial facilities across the United States, Jeff invests in opportunities that provide ongoing income with the likelihood of doubling investor capital over time.
