Hampshire Plans $1B in Acquisitions

With the lending market in disarray and many investors choosing to sit on the sidelines and wait for signs of improvement, now would not seem to be the time to start an acquisition fund targeting $1 billion in new properties.

Yet that is what The Hampshire Cos. is doing. James E. Hanson II, president and chief executive officer of the Morristown-based private real estate investment firm, said there are still many investment opportunities to be found in the Northeast's office and industrial real estate markets.

Hampshire collected $350 million from 20 investors -- mostly endowments, foundations and public/private pension funds -- as part of its Fund VII program from November 2006 to mid-July. The company plans an overall portfolio leverage of 65 percent, meaning it will acquire about $1 billion in real estate.

Hampshire's previous investment offering, Fund VI, raised $235 million from primarily institutional investors, Hanson said. Hampshire targeted properties during the acquisition phase of Fund VI that are similar to those it is targeting in Fund VII: office and industrial real estate.

Given the popularity of Hampshire's investment offerings, the company could have raised in excess of $500 million for Fund VII, but opted to cap it at $350 million, Hanson said. This decision goes to the heart of Hampshire's investment philosophy: buying properties for no more than $25 million, where there is often less competition.

"We like to be under the radar screen on acquisitions," Hanson explained. "That's why we kept this fund to $350 million. If the fund got larger, by virtue of the investments, you'd have to do larger acquisitions."

New Jersey, the third-largest industrial real estate market in the country in terms of square feet – 759 million -- has been ground zero for much of Hampshire's acquisitions, Hanson said. Unlike markets in the Midwest, New Jersey – especially the Meadowlands – is a supply-constrained market where available land is at a premium. It is within older industrial centers north of Edison that Hampshire has focused much of its acquisition efforts, targeting infill or redevelopment opportunities.

North Jersey's industrial real estate will continue to be a focus for Hampshire in this current acquisition cycle, Hanson said. Industrial space often requires the least amount of capital to bring up to modern Class A standards – renovations to parking lots, roofs and loading docks are usually all that's needed.

"We still like markets like Teterboro and South Hackensack," Hanson said. "In good times and bad, properties there are always fully leased. That location has just stood the test of time."

Hampshire's investment model is "value-added," where the values of properties are increased through renovations, expansions or redevelopment projects. The company doesn't look for long-term investments, preferring to identify underutilized properties, purchase them, fix them, hold them for three to five years, and sell them at a profit, Hanson said.

"We call it real estate re-imagined," Hanson said with a laugh.

This tack is the opposite of firms like Kushner Cos., which in June sold its 17,628-apartment portfolio for close to $2 billion, the largest sale of residential real estate in New Jersey's history.

The company parted with those units after holding many of them for 20 years or more. At the time of the sale, Jared Kushner, a principal in his father Charles' Florham Park-based company, made it clear that the company intends to focus almost exclusively on high-profile property in Manhattan, like the $1.8 billion purchase of 666 Fifth Ave. earlier this year.

Hanson said that when commercial properties with a price tag above $100 million reach the market, there is usually a furious bidding war for them. Despite assets valued at roughly $1.5 billion, Hampshire rarely wins the highest bids for such properties; hence its focus on smaller properties. Fewer square feet also enables Hampshire to break its acquisitions into blocs of space better suited to small businesses, a practice Hanson said Hampshire takes pains to support.

"We live and breathe small tenants who are focused on special-niche markets, who are successful at what they do, and who are fast and nimble and can adjust to changing markets on the fly," Hanson said.

This article is reprinted in its entirety from original text published by www.northjersey.com.