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American Property Consultants "boutiques" its way to success

It's rare that you find firms in this business that are run by people who are both real estate savvy and financial engineers. But this is the interesting mix of talent running the show at American Property Consultants (APC), a New York City-based, self-described "boutique" firm that specializes in structuring real estate financial transactions-finding equity, debt and mezzanine financing for developers, or representing institutions on the buy and sell side - on a national basis and on all types of properties.

"Our client base has remained constant the regional and super-regional developers who have been expanding all along who have worked out their debt restructuring problems," says Richard Mosse, APC's president. "The advantage of what we bring to the table is we're not only familiar with the real estate, we're also familiar with the structure of the entity that owns the real estate. We're also able to identify joint venture partners because we know all of the capital equity sources. So having all three facets of that, we're perfectly positioned to service our clients who did not go public, and now there are greater advantages to those people through joint venturing and for being private REITs, for being recapitalized than they would have had in the public markets. Our purpose is the transaction of real estate, with as many high-tech tools as we can possibly make available to any one client at any one time."

In the last year alone, APC has more than doubled its deal volume, doing about $2.6 billion worth of transactions. But Mosse isn't satisfied with that, and he wants to grow the volume to $5 billion.

The increased activity is a direct result of instititional investors being back in the real estate market.

"Everybody is focusing on the real estate market again, which happens to be a very small market in comparison to overall investment," says Mosse. "But it is the most secure and it's been the most rewarding and the most favored, which is why we have foreign clients who want to invest in the United States."

Here come the funds

Pension funds, in particular, have made a big dent in APC's business of late.

"One of the reasons our business has grown substantially over the last 12 months, with the slowdown of distressed portfolio sales by the banks, the pension funds have had to find new outlets to make investments, whereas two or three years ago they were investing in the Whitehall Fund and other big funds to buy up big portfolios," says Anthony Corso, APC managing director.

"With that business being gone, folks that handle single asset or smaller investment-grade portfolio transactions like we do, we're the next generation of investment opportunities. They're finding interesting joint venture deals they're working on private REITs which we help to arrange. That's really a new business segment for us and we're spending a lot of our effort trying to develop it. We believe that most of the real estate developers throughout the country did not go public. So most of the wealth in real estate is still owned privately and most of those companies that have survived the bad times have restructured their loans and are now looking to grow their companies, and the way to grow their companies is by aligning with an institutional capital partner, which we can bring to the equation," says Corso.

As Mosse sees it, APC's greatest advantage has been its access to financing products. "The second advantage is we can supply to any transaction both the debt and the equity for the acquisition or the disposition. We can even sell an institutional-grade piece of property and entirely finance up to 90% to the buyer to get an execution."

Though the firm has done deals in 22 states in the last year, and in 40 states over its 15-year existence, in recent months its own New York backyard has become a hot market for APC's deals, particularly on the luxury-rental residential side. "In the last nine months we've made more of an effort to focus on Manhattan and we see that as an evolving part of our business," says Corso.

Mosse admits that when he started the firm he didn't pay much attention to New York because the business had always been national in scope. "As the economy started to pick up in the last three years it's reflected itself in the overall real estate market as well. That pickup in economy and also the infusion of capital by the pension funds into real estate has caused a real surge in the real estate business and New York has been dragging along with it. So all of a sudden we're getting hired for New York deals. It's in the hundreds of millions [of dollars] now," says Mosse.

Private deals lead the way

Mosse sees critical advantages to being a boutique-sized firm.

"We are a niche-equity firm. Boutique is exactly what we are. Except when you think about it, it's our type of client that probably controls 70% of the real estate in this country. We're not interested in supplying joint venture partners to REITs. We're interested in capitalizing portfolio owners who are private. That's who we serve. But we do sell for public companies. We're very good at institutional sales and executing them," says Mosse.

Corso agrees. "That's becoming a bigger and more important part of our business and revenue stream going forward."

As Michael Lehrman, APC managing director, puts it, there are sound reasons for the repeat business. "There are things that separate somebody that gets things closed and just sees a problem and freezes. In every transaction there's a difficult issue that's going to arise, and the reason we get hired is our client tells us they believe when that problem comes up we're ready for it, we've seen it before, we know how to respond. We bridge the gap for the dominant developer or operator in a marketplace and bring that capital to a closing," says Lehrman.

Another of APC's strengths is the privately negotiated transaction, which has become a much larger part of the firm's business. More often these days, private companies and major institutions alike are asking APC to make unsolicited offers to owners.

"We have an innate ability that sets us apart from the competition in our ability to structure transactions competitively, to negotiate them and to above all keep them quiet," says Lehrman.

""What we hear mostly from the institutions is nobody wants to just work on deals that are being mass-marketed across the country," says Corso. "There's so much competition in the bidding process. And more and more people are going to privately negotiated transactions. They're willing to pay a premium for a deal that isn't on the market. There's a premium to be paid for surety."

This market is apparently wide open, with endless growth in the years ahead.

"There's still a lot of transitional rather than stabilized real estate," says Lehrman. "That's a big focus for us right now."

Increasingly, APC is being hired by some of the largest pension funds, the pension fund advisers and even the REITs and private investment funds to work on their behalf for strategic acquisitions, and more of these types of transactions are private and quiet.

The bottom line is that all of the talk about the funds getting into real estate in a big way finally may be coming to fruition.

"We have a lot of relationships at the plan-sponsor level, and they're telling us emphatically that they want to be in this business," says Corso. "We believe over the next two to three years most of the largest public and corporate pension funds that invest in real estate will view this as the most favored way to make investments (through the private route). If the can make large investments - $50 million to $100 million - they can align their interests strategically over a portfolio of assets, they can put themselves in a position to invest in properties that perhaps would never get marketed. If you think about it, much of the quality assets that are owned privately are not being sold today. This will be the next evolution."

Working with brokers

Another area that has become a hot new source of business is the national brokerage community.

"Institutional brokerage firms get an assignment and they want to be sure that they can get the best execution. That's a great new source of business for us. We don't compete with them. We're the access to the funding that gets a transaction done, which was our only goal at the beginning," says Mosse.

"What differentiates us from being a traditional broker is we're really a financial services firm. We're interested in providing financial services, not just pure brokerage. The market that we function in is one that requires structuring. It's complicated, it has to be analyzed, it has to understand the real estate. You then have to understand the capital markets, you have to work out the traditional debt, you have to understand mezzanine pieces and how they work and how they are really hybrid equity deals, and you have to understand the needs of the seller and the buyer. So there's a lot of work to do. None of this is traditional brokerage," says Mosse.

And that in the end is perhaps APC's greatest strength - its ability to work on all sides of just about any deal without being viewed as competition to any of the participants.

To grow the business even more significantly (and to reach Mosse's magic $5 billion in volume mark), Mosse is forming a strategic alliance with a major firm with 75 regional offices (the name of which will become publicly known in time), which will allow APC to in seconds tap into all of the information we have to know about any specific market in the country.

"We understand what it is that we do that may pose a threat and how it is that we are a complement," says Lehrman. "It's a big, big industry, and there's a lot that you can do. We like to look at what it is we can do that adds to any equation, whether that's working with the pension fund community, the development community, the brokerage community. We try to provide a service where we're adding value and creating value to each one of those."

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