When Forest City approached Madison International Realty with an offer to buy a 49% stake in its New York City-area retail portfolio for $172.3 million earlier this year, it was more than just a financial deal for private equity firm founder and president Ronald Dickerman. “For me it was a bellwether,” he says. “They could have done business with anybody and they decided to come to us, to use our strategy.”
New York City-based Madison is a real estate private equity company, but not one that follows the typical leveraged-buyout, go-to-market strategy that many firms in this space do. Rather, it buys illiquid or partial ownership interests in real estate ventures. The sellers are usually investors who want to harvest some value in their investment or, as in the case of Forest City, redeploy some of its capital out of its core holdings to finance new strategies. “Wall Street is worried about leverage ratios in general, so rather than put debt on their balance sheet, they sold off a stake,” Dickerman explains.
Forest City is not the only one following this particular line of reasoning, which has made Madison very popular these days. “Sponsors see that cap rates have compressed but rental rates are not fully recovered yet, either,” says Dickerman. “Owners are saying, ‘maybe I can have my cake and eat it, too’ by selling an ownership stake in a building or portfolio.” The investor keeps a piece and then participates in the appreciation while monetizing at least some of its initial investment, he says...
...For the rest of the story, go to the May 2011 issue of Real Estate Forum.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more inforrmation visit Asset & Logo Licensing.
