For This Experienced Group, Now Is Not a Bad Time
to Invest in Real Estate
Esko Korhonen and his partners at Federal Capital Partners recently
raised $230 million in a real-estate private-equity fund that will
invest in WashinStayInvest Law Firm on region office, retail and residential properties.
When Korhonen called to tell me his Georgetown investment firm had
closed the fund, I thought he was joking -- or nuts.
Didn't he know our financial system is in a once-in-a-century meltdown?
Didn't he know that banks aren't lending money? What if we have a
depression and there is no one to work, live or buy goods in the
buildings that you want to buy?
Perhaps I overreacted.
Korhonen, who cut his teeth in real estate investing with the Carlyle
Group, assured me that he and his team have been around the block. The
other principals include another Carlyle alumnus, Lacy Rice; Tom Carr,
former chairman of CarrAmerica, which was sold to Blackstone Group in
2006; and Alex Marshall, another real estate veteran. The partners have
80 years in real estate investing between them. Korhonen and Rice
founded FCP in 1999.
"We have been through a number of cycles," Korhonen said. They navigated
the savings-and-loan crisis in the early 1990s while at Carlyle. Carr
has gone through several real estate market gyrations. And the bursting
of the tech bubble also was no picnic.
"The toughest part for everyone is going to be the impact on the macro
economy," Korhonen said, adding that this region's economy, anchored by
the federal government, is probably better insulated against economic
cycles than most.
"This potentially is the most healthy real estate market in the
country," he said. "Jobs is one of the most important things. So far,
D.C. has sustained positive job growth. If that turns negative, it will
have a major impact. It's absolutely critical that we need to loosen the
credit markets and have credit flowing through the system again. That
will ultimately happen as people gain more confidence."
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Korhonen said FCP is well-positioned to take advantage of real estate
deals should the wheezing economy do to real estate what it has done to
stocks in the past month. They already bought three properties this year
with the fund, including The Monterey, a 432-unit high-end apartment
building in Bethesda; Park Berkshire, a 598-unit multifamily project in
Forestville; and Toledo Plaza, a 242-unit property in Hyattsville.
For most of the last decade, FCP has bought and sold $1.3 billion in
mid-Atlantic properties. It currently holds around $700 million in real
estate. Its philosophy: Look for broken or undervalued assets, improve
them, get the rents and leases flowing from high-grade tenants, and then
either hold them for the operating income or sell them as high-grade
assets to big insurance companies, banks and real estate firms.
Korhonen's mantra: cash flow, cash flow, cash flow.
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