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New York luxury condo developer tries hand at Reit investing

New York

A DEVELOPER of some of Manhattan's newest ultra-luxury condos has started a more down-to-earth project: a fund investing in real estate companies that appear undervalued.

The venture by Ziel Feldman's HFZ Capital Group will buy shares of publicly-traded real estate investment trusts (Reits) that have taken a hit from the pandemic, Mr Feldman said in an interview.

HFZ, Lionbridge Capital LP and other partners provided US$50 million in seed money for the fund, which aims to raise as much as US$500 million from institutional investors.

It has already bought stakes in New York office landlord Vornado Realty Trust and senior-housing operator Ventas. Both companies' shares have slid since the beginning of March.

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"We're in the very businesses we're investing in," said Mr Feldman, HFZ's chairman and founder, whose company also owns and develops offices, including a speculative tower under construction in Manhattan's NoMad neighbourhood.

"We have real-time information from brokers, we're seeing the rent collections and leasing activity from our own portfolio."

The prolonged Covid-19 lockdown has upended the commercial real estate market, shuttering retail spaces and emptying office buildings as the nation at large stayed home. Even as social-distancing rules ease, the virus may leave a lasting impact on how and where Americans work and spend their leisure time, and on the values of properties where those activities take place.

But anyone looking for discounted buildings in the private market would not find them yet, said Adam Feldman, the developer's son and HFZ's director of acquisitions. The deals now are in the stock market, where shares of many Reits are trading below the value of the properties they hold, he said.

"The highest returns you can get today are in the public market," said Mr Adam Feldman, who will comanage the fund with Lionbridge.

In one of its office buildings in Detroit, HFZ collected 92 per cent of rents last month, and it is hearing from brokers in other markets that tenants are looking for more space so workers can spread out, Mr Ziel Feldman said.

That is giving the firm an upbeat view of the future for offices, and motivating its bet on shares of public landlords.

Firms that own properties such as nursing homes and assisted-living communities have also seen their shares slide amid a contagion that was especially deadly for the elderly. The fund has bought Ventas stock because it sees a bright side.

Nursing homes are "going to end up being the most-controlled environment when the rest of the world goes back out", Adam Feldman said. "These facilities will be the safest place to put your parents or grandparents."

The fund also holds shares of Welltower, a Reit that invests in senior housing and health-care properties.

Investing in Reits is a different tack for HFZ, which unleashed more than US$3 billion worth of luxury condos onto the Manhattan market in 2018. It is still trying to find buyers for many of them.

The firm's condo projects include the Belnord, a conversion of a century-old rental building on the Upper West Side, and The XI, rising near the High Line in Chelsea with a futuristic design by Bjarke Ingels. BLOOMBERG

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