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LOS ANGELES-Phoenix Realty Group, based here and in New York City, has completed the capitalization of two real estate private equity funds totaling $470 million that will finance work force housing in the Greater L.A. area and in the New York/New Jersey/Connecticut tri-state area. Investors in the two new funds, which are called the Metropolitan Workforce Housing Fund and the Genesis Workforce Housing Fund II, include the New York State Common Retirement System, the New York City Employee Retirement System and TIAA-CREF Global Social and Community Investments. The Metropolitan fund will finance the New York area investments and the Genesis fund the Los Angeles area properties.

Keith B. Rosenthal, New York City-based president of Phoenix Realty Group, tells GlobeSt.com that the investment and development firm plans to proceed slowly on acquisitions initially. “Our intention is to start out a bit slowly, for the near term of two to three months, because we believe that the buy opportunities will be stronger some months from now than they are now,” Rosenthal says. After that, he says, PRG will most likely adopt “a stronger buying posture for the balance of the year.”

About 80% of the funds that Phoenix raises typically go toward work force housing, with the remaining 20% financing other components of mixed-use projects that the company acquires, develops and redevelops. The firm leans toward community-serving retail, office and medical office as the other elements of its mixed-use projects.

Phoenix raised these latest funds during a period of gradual decline in the housing market nationally as well as the capital markets turmoil of the past half year, but Rosenthal says that the changing market conditions actually worked in favor of the firm’s efforts to raise capital.

“People understand that we are going back to real estate basics, that the money to be made going forward isn’t going to be on the luck of compressing cap rates, or the over-leveraging of properties or cheap debt,” Rosenthal says. “The way money is going to be made going forward–and I don’t think that people just discovered this in the past two or three months–is that you’ve got to pick good real estate, pay the right price for it, then really roll up your sleeves and squeeze all the value you can out of the real estate.”

With real estate reverting so clearly to time-tested fundamentals, the Phoenix president says, savvy investors are looking to place their money with firms that know both the finance and the operations sides of real estate. “People understood that we are a vertically integrated real estate company that is good at underwriting and finance but also has expertise in real estate and development,” Rosenthal says. He says that the new funds’ investors understood that, “We have the right combination of talents to buy at the right price and to get value out of the real estate.”

PRG expects to deploy the capital in the new funds over the next two to three years, ultimately adding to the net total of work force housing stock through new construction as well as rehabbing or adaptively reusing real estate. For the near term, the firm expects to invest more in rental housing than in for-sale projects. When it does acquire for-sale properties, it will likely buy distressed or under-performing properties, sticking to the principle of “making money on the buy,” Rosenthal points out.

Combined with existing Phoenix funds, the two new funds that have closed increase the total Phoenix Realty urban fund capitalization to $725 million. That $725 million is being leveraged to create $3.5 billion in market-rate rental and for-sale housing, mixed-use properties and commercial developments in urban and infill areas nationwide. J. Michael Fried, chief executive officer of PRG, says that investors’ confidence in the new funds endorses a long-term PRG strategy that “can weather changing cycles.”

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