GreenOak to Raise $500 Million for U.S. Property Fund

GreenOak Real Estate LP, an investment firm founded by three former Morgan Stanley executives, is preparing to raise about $500 million for its second U.S. fund to acquire properties in large coastal cities.

The firm’s first pool is about 70 percent invested, mostly in New York office, retail and residential properties, said Sonny Kalsi, a founder and partner.

GreenOak, which started in 2010, acquired almost $1 billion of commercial real estate as of December, using its $350 million Fund I and co-investor capital, money from operating partners and mortgage debt, said Chris Niehaus, a partner who heads the New York-based firm’s U.S. business. GreenOak finished raising the first fund in August 2012.

“Our investment strategy has focused on the high-barrier- to-entry, core gateway markets,” Niehaus said in a telephone interview. “New York remains a major opportunity. It’s a big, deep market with the ability to buy below replacement cost if you are patient and have the right relationships. There’s a lot of liquidity to sell.”

Last month, GreenOak teamed with Aby Rosen’s RFR Holding LLC to buy 285 Madison Ave., an office building near Grand Central Terminal, for about $189 million. Young & Rubicam Inc. plans to vacate the building this year, after which the new owners plan a renovation, Kalsi said.

Also in late December, GreenOak bought 321 W. 44th St., the 255,000-square-foot (24,000-square-meter) office building near Times Square that houses the New York Observer newspaper. GreenOak and its partner in the $92.5 million purchase, East End Capital, plan to update the lobby, corridors and some building systems and increase occupancy.

Gateway Cities

GreenOak seeks to invest in so-called gateway cities -- coastal metropolitan areas such as New York, Washington, Boston, Miami and Los Angeles. Its strategy is to buy underperforming assets below replacement cost in areas with strong leasing demand, Kalsi said.

The firm struck its first hotel deal in the fourth quarter, in Miami, and plans to buy more commercial property in the south Florida city, Niehaus said. GreenOak and partner Geolo Capital, founded by Hyatt Hotels Corp. (H) heir John Pritzker, bought the Crown at Miami Beach, a three-tower apartment complex, for $100 million. They plan to spend $67 million to convert the beachfront property into a boutique hotel that will be managed by Pritzker’s Commune Hotels & Resorts.

A unit of Goldman Sachs Group Inc. (GS) provided a $125 million loan to the partnership.

Miami Push

Its weather, location and favorable tax and business laws make Miami a favorite destination for groups including professional athletes, New York retirees and wealthy Latin Americans, according to Kalsi.

“We’re very bullish on Miami -- office, residential, retail,” he said. “When we look back 10 years from now, I think Miami will be in the top five gateway cities” in the U.S., along with New York, Los Angeles, San Francisco and Boston.

GreenOak also has begun selling earlier acquisitions to return money to investors. Yesterday, American Realty Capital New York Recovery REIT Inc. said it agreed to buy 218 W. 18th St. in Manhattan’s Chelsea neighborhood from a joint venture of Atlas Capital Group and GreenOak for $112 million.

Atlas and GreenOak had purchased the defaulted loan on the building last year and subsequently took ownership of the property through a prepackaged bankruptcy reorganization. They signed lease agreements with Red Bull North America Inc., SAE Institute of Technology Corp. and Yammer Inc., a unit of Microsoft Corp. (MSFT), increasing the occupancy to 84 percent. The building has 166,000 square feet of rentable space.

Investor Returns

In December, GreenOak sold 256 W. 38th St. in Manhattan for $48.6 million, 18 months after buying it for $30 million in conjunction with East End Capital and investing additional money to refurbish it, according to Kalsi.

GreenOak aims for returns before fees in the high teens to low-20-percent range, Kalsi said.

“We are aggressively seeking dispositions” once the renovations and leasing plans have been accomplished, he said.

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net