An Interview With: Brian Katz
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America's Capital Partners is a real estate investment company founded in 1998 by two ex-Cushman & Wakefield brokers out of Miami, Alan de Olazarra and Rudy Touzet. In 2003, Brian Katz and Doug Fleit, longtime brokers in Cushman's DC and Virginia offices, joined de Olazarra and Touzet to create the Mid-Atlantic offices which now stretch from Raleigh to Philadelphia. With over 125 employees in Miami and Washington and many of them originating from Cushman & Wakefield, their inside joke is that “ACP” stands for “All Cushman People.” Katz, the president, grew up in Silver Spring Maryland, was with Cushman since 1993 and before that with the Evans Companies. Fleit, the CEO, is from Alexandria, was with Cushman since 1982 and before that with Savage/Fogarty. Americas Capital Partners Mid-Atlantic is based at Woodland Park in Herndon, which was their initial building purchase in October of 2003.
Why did you switch from Cushman? While our experiences at Cushman and as third party brokers were excellent, Doug and I always had a secret desire to go to the dark side—to be owners. We have always looked to ownership as one of the end games of this business. We watched for many years while we helped our clients create value. Now it’s our turn to create value for ourselves and our partners.
Who are your partners? Each transaction has a unique set of circumstances and results in a different type of equity partner. When we started the company in 2003, they tended to be value-add or opportunity investors including hedge funds, Wall Street, endowments, and individuals. Today as the market has matured, they tend to be more institutional investors and pension funds.
What's your secret sauce? Our real strength is that we know how to operate buildings better than the average investor or operator. Each one of our principals is an ex-leasing broker, and we’ve all been in the trenches leasing and operating properties. If you have three buildings for sale on the same street or the same submarket, and they're all comparable in terms of age, quality, views, how do you know which one will lease better—which one should you buy? We simply feel confident that we can outperform our peers. We have a philosophy that we're going to enhance each project we acquire whether it’s a value-add project or a core investment. While most of the value going forward will be centered around improving rents, correctly structuring the capital stack can enhance or unlock values in core assets. Our capital also allows us to be unique. Unlike other companies or funds who have a specific mission to invest in an asset class or time frame, since we have so many different sources of capital we don't have to sit in a certain box. We don't have to hold something for 10 years even in the face of a good offer.
What's an example of a success? 1501 M Street was one of our first deals and one that we were able to buy off-market. We sold it last year for considerable gain within 18 months of our acquisition. We’re also very proud of our very first transaction buying Woodland Park in Herndon in October of 2003 from Tishman Speyer. It was spectacularly developed, but had gone through the tech bust, and was only 40% leased when we purchased it. At the time, no one believed in the Northern Virginia recovery, but we did. Doug and I had been through it before and knew that it was a great value. Now it's 95% leased and we're recapitalizing the project.
Why did you join ACP rather than start your own company? Allen and Rudy provided a level of experience that we did not have. Plus, they're the kind of people you want as your partners. Everything's easy when you're making money, the question is how people behave when things don't go according to plan. We knew they were great under pressure.
Who's in your firm's peer group? We're unique, because we're not an institution or a public company, so we have the ability to invest in any product type. For example, one of our most recent transactions was King Farm at Irvington Center, a $190 million all cash deal where we competed and won against several well known national public players. They had to follow their mission as set by Wall Street. We didn't.
How much have you done, and what kind of property? We have about $750 million in value under ownership, which is typically leveraged about three to one. In November it will be our three year anniversary, and we have purchased about 3.5 million square feet from Raleigh to Philadelphia. It’s mostly class A office space, but our most recent investment was a warehouse building in Prince Georges County. To some extent we are like many of the other investors/developers, although we don't build from the ground up.
Might you someday? We might, we'll see where that takes us. But they take development risk that we don't take. Someday we might do that.
What do you look for, and how do you make money? We go after anything that makes sense: vacant buildings, hotels or multifamily. We recently bought a 1.2 million square foot office building in Philadelphia and are now converting the top 20 floors into high end residential condominiums. We invest in every one of our properties and that investment can be anywhere between 1 percent to 25% of the equity which means we make money when our capital partners make it. We provide spectacular results for our partners and therefore get access to large resources. That allows us to go after larger and larger transactions.
Do you use brokers? Sometimes, but a number of transactions are off-market where we are able to negotiate directly.
That saves you money? Not necessarily. It just means that when you stretch for that last dollar, the transaction is yours. No one is waiting in wings to steal the transaction.
Do you continue to see an abundance of capital? Equities have generated lower and lower returns, Treasuries continue to trade at historic lows, so if you look at real estate as an alternative investment, the returns continue to be better. Major institutions recognize that as a more acceptable asset class, and now invest 5-8% in real estate rather than 1-2%. With Treasuries still around 5%, there will still be abundance of capital chasing core transactions, especially downtown CBD Class A or close-in. As for value-add or opportunity transactions, we seem to be at an inflection point.
What's the difference between CEO and President? Who's the boss, you or Doug?Both and neither. We're actually a democracy, all equal partners. You just have to win the argument.
You guys have hobbies? Golf and wine. We're terrible at golf, but do know how to drink good wine.
But you play golf anyway. Playing golf, as you know, has three components: golfing, drinking, and smoking cigars. In order to enjoy yourself, you only have to do two of those things well. :)