Jones Lang LaSalle
With a Deep-Pockets Partner, Denholtz Branches Out
The developer joins forces with Rothschild to invest in bigger and classier projects
Shankar P.
NJBIZ Staff
2/27/2006
RAHWAY
Real estate developer Steven Denholtz could see that the nationwide economic recovery had begun to buoy commercial real estate after a four-year slump. Landlords in select markets were charging more and scaling back on concessions like rebates and furnishing allowances. Denholtz knew it was time to find more capital to deploy, and to get it from deep-pocketed institutions instead of private investors. So that’s what he did.
For the last two months Denholtz has been working with a new investment partner, Rothschild Realty of New York City, and the deals are already bigger. Rothschild has committed equity of $125 million, Denholtz will bring in $55 million, and with borrowings the firm’s investment power could reach $500 million.
Until last year, Rahway-based Denholtz Associates did development jobs worth some $50 million annually. Now, renamed Denholtz Holdings, it is looking at a 2006 volume of $150 million. The firm’s average deal size has jumped from $10 million to $15 million to upwards of $25 million to $50 million. It owns a $700 million portfolio of commercial real estate of more than 7 million sq. ft. The focus is New Jersey, but Denholtz has investments in Chicago, Philadelphia and Florida.
Earlier this month Denholtz Associates made its first investment with Rothschild’s Five Arrows fund, buying a 217,000-sq.-ft., seven-story office building in downtown Atlanta for $27 million. With that, the firm’s office portfolio in Atlanta surpassed 800,000 sq. ft. Denholtz will also begin development of a five-acre site it owns in the central business district of Tampa, Fla., putting up a $30 million, 150,000-sq.-ft. office building.
"In just two months, it is very obvious to me that [Rothschild’s] understanding of the real estate industry and their network of contacts are just tremendous," says Denholtz, 51, CEO of Denholtz Associates. "It’s better than I dreamed of."
In the next two to three years, he plans to buy and develop properties in the New York-New Jersey-Philadelphia corridor, in Atlanta and across Florida.
Denholtz’s firm had raised private capital for more than 15 years. Its biggest such investor has been The Zaro Group, representing several high-net-worth investors led by Jerold Zaro, a managing partner at the law firm Ansell Zaro Grimm & Aaron in Ocean Township. Two years ago, Denholtz hired asset-management firm Legg Mason to help him tap institutional money. That search came up with GE Commercial Finance Real Estate of Stamford, Conn. Last July the two formed a joint venture in which GE Commercial committed to invest $150 million.
Denholtz says the GE joint venture was "very successful," but he still wanted more funding. Keith Getter, managing director of Stifel Nicolaus & Co., the St. Louis investment-banking firm that acquired the capital markets business from Legg Mason last December, kept on with the search. He ultimately made the Rothschild connection.
Rothschild has an unusual approach to its real estate partnerships. It is typical for real estate investment partners to form joint ventures for specific assets such as office buildings, and share the profits. But Rothschild prefers to be "aligned all the way," says Denholtz, buying into its partners’ management and operating companies too.
"We don’t invest directly in real estate; we invest in companies," says D. Pike Aloian, managing director at Rothschild in New York City. Aloian and Getter are the two Rothschild representatives on Denholtz Associates’ board; Denholtz and Zaro are the other members. While Denholtz—whose family owns the firm—has ceded some ownership control, he retains operational control.
Says Aloian: "By design, our job is to make the investments and to oversee the disposition of the proceeds, not running the company."
Over the years, Denholtz Associates made a niche for itself in turning around high-risk properties for high profit. These opportunistic plays are at one end of the investing spectrum. At the other end are so-called trophy properties with great locations and well-known tenants—the GM building in New York City, for example.
The Rothschild partnership now allows Denholtz to move up that value chain to "core plus" properties: good-quality office buildings one notch below premier office parks. These offer less upside potential but also involve much less risk than opportunistic investing.
E-mail to shankarp@njbiz.com
With a Deep-Pockets Partner, Denholtz Branches Out
The developer joins forces with Rothschild to invest in bigger and classier projects
Shankar P.
NJBIZ Staff
2/27/2006
RAHWAY
Real estate developer Steven Denholtz could see that the nationwide economic recovery had begun to buoy commercial real estate after a four-year slump. Landlords in select markets were charging more and scaling back on concessions like rebates and furnishing allowances. Denholtz knew it was time to find more capital to deploy, and to get it from deep-pocketed institutions instead of private investors. So that’s what he did.
For the last two months Denholtz has been working with a new investment partner, Rothschild Realty of New York City, and the deals are already bigger. Rothschild has committed equity of $125 million, Denholtz will bring in $55 million, and with borrowings the firm’s investment power could reach $500 million.
Until last year, Rahway-based Denholtz Associates did development jobs worth some $50 million annually. Now, renamed Denholtz Holdings, it is looking at a 2006 volume of $150 million. The firm’s average deal size has jumped from $10 million to $15 million to upwards of $25 million to $50 million. It owns a $700 million portfolio of commercial real estate of more than 7 million sq. ft. The focus is New Jersey, but Denholtz has investments in Chicago, Philadelphia and Florida.
Earlier this month Denholtz Associates made its first investment with Rothschild’s Five Arrows fund, buying a 217,000-sq.-ft., seven-story office building in downtown Atlanta for $27 million. With that, the firm’s office portfolio in Atlanta surpassed 800,000 sq. ft. Denholtz will also begin development of a five-acre site it owns in the central business district of Tampa, Fla., putting up a $30 million, 150,000-sq.-ft. office building.
"In just two months, it is very obvious to me that [Rothschild’s] understanding of the real estate industry and their network of contacts are just tremendous," says Denholtz, 51, CEO of Denholtz Associates. "It’s better than I dreamed of."
In the next two to three years, he plans to buy and develop properties in the New York-New Jersey-Philadelphia corridor, in Atlanta and across Florida.
Denholtz’s firm had raised private capital for more than 15 years. Its biggest such investor has been The Zaro Group, representing several high-net-worth investors led by Jerold Zaro, a managing partner at the law firm Ansell Zaro Grimm & Aaron in Ocean Township. Two years ago, Denholtz hired asset-management firm Legg Mason to help him tap institutional money. That search came up with GE Commercial Finance Real Estate of Stamford, Conn. Last July the two formed a joint venture in which GE Commercial committed to invest $150 million.
Denholtz says the GE joint venture was "very successful," but he still wanted more funding. Keith Getter, managing director of Stifel Nicolaus & Co., the St. Louis investment-banking firm that acquired the capital markets business from Legg Mason last December, kept on with the search. He ultimately made the Rothschild connection.
Rothschild has an unusual approach to its real estate partnerships. It is typical for real estate investment partners to form joint ventures for specific assets such as office buildings, and share the profits. But Rothschild prefers to be "aligned all the way," says Denholtz, buying into its partners’ management and operating companies too.
"We don’t invest directly in real estate; we invest in companies," says D. Pike Aloian, managing director at Rothschild in New York City. Aloian and Getter are the two Rothschild representatives on Denholtz Associates’ board; Denholtz and Zaro are the other members. While Denholtz—whose family owns the firm—has ceded some ownership control, he retains operational control.
Says Aloian: "By design, our job is to make the investments and to oversee the disposition of the proceeds, not running the company."
Over the years, Denholtz Associates made a niche for itself in turning around high-risk properties for high profit. These opportunistic plays are at one end of the investing spectrum. At the other end are so-called trophy properties with great locations and well-known tenants—the GM building in New York City, for example.
The Rothschild partnership now allows Denholtz to move up that value chain to "core plus" properties: good-quality office buildings one notch below premier office parks. These offer less upside potential but also involve much less risk than opportunistic investing.
E-mail to shankarp@njbiz.com
posted by Jones Lang LaSalle NJ News Blog at 10:55 AM
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