May 5, 2024

The 30-Minute Interview: The 30-Minute Interview: Richard J. Mack

AREA, founded in 1993, has invested around $14 billion in over 600 transactions worldwide, including the Time Warner Center and the Apthorp condominium in New York.

Interview conducted and condensed by

VIVIAN MARINO

Q. How much of your portfolio is in the New York region?

A. I would say probably about 25 percent of what we do is in the New York area.

Q. Is most of your focus these days in the multifamily sector?

A. We are opportunistic in how we view the world, and so we see the risk-adjusted returns favoring the residential sector. Over the last three years we’ve been one of the most active buyers of multifamily. We bought nearly 25,000 units across the country.

Q. You’ve also gained control of properties through debt purchases, like the Apthorp condominium on the Upper West Side. What’s happening there in terms of improvements to the building?

A. Most of the value-add that needed to occur to the common areas has already been done. But upgrading the finishes and combining units is something that we continue to do.

Some like to finish the units themselves, so we are making a unit-by-unit decision. The biggest value-add that we’re bringing to that property is stable ownership. It’s making people feel comfortable that the asset is properly capitalized. They don’t have to worry about another financial crisis.

We have everything from four-bedrooms to studios.

Q. How else are you adding value to your acquired properties?

A. Value-add for us is a style of investing. We are buying cash-flowing assets that have some need of improvement. In multifamily space, for example, we’re looking for properties that have been overleveraged and therefore financially starved of investment. So there’s deferred maintenance. So we’re fixing roofs and clubhouses and things like that. We also look at investing in the units, where we think that upgrading the units we can get higher rents.

Q. What about investing in condos?

A. We think that the multifamily sector is very, very resilient and has been driven by things other than economic growth, really demographic forces. But I also think there’s an element of people wanting to rent, believing that home prices are only going to go up. So you have this large change in attitude about homeownership and demographic forces.

A shock in the condo market could come from a disruption in the economy. So we are concerned about taking too much risk on the condo side. We are approaching it right now with preferred equity and mezzanine as a way to enter the business, but we’re not ready to take on more risk from a common equity perspective.

Q. Who are your main investors?

A. They are the largest public pension funds in the U.S. and some of the largest sovereign wealth funds in the world. We have them from the Middle East as well as other places that seem to be exporters of capital these days.

Q. What’s the minimum investment in your funds?

A. The minimum is usually $5 million. It’s primarily institutions, but we do have high-net-worth investors who can make that investment and those who have been investing with us for very long periods of time who we can be somewhat more flexible with.

Q. What kind of rates of return are you looking to get on your funds?

A. We target different rates of return depending on the risk we’re taking. For our mezzanine funds we are looking for 12 to 15 percent; for our value-add fund we’re probably looking for 13 to 16 percent; and for our opportunistic funds we’re looking 16 to 20 percent.

Q. Your father, William Mack, is a prominent real estate investor, and also the chairman of the board of Mack-Cali Realty, one of the nation’s largest publicly traded real estate investment trusts. Was he also your mentor?

A. My father definitely has been a mentor — whether on purpose or by osmosis. Growing up, going out to the construction sites when you’re a kid definitely has an impact on you. Even if you want to get away from real estate it’s kind of hard. It was kind of in my blood.

My father is kind of the senior statesman and the chief critic. It’s been fantastic to have him there to serve both of those roles. I think what I learned most from my dad was probably lessons on humility and how to treat people in the world, and that your word is your bond.

Article source: http://www.nytimes.com/2012/11/28/realestate/commercial/the-30-minute-interview-richard-j-mack.html?partner=rss&emc=rss

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