Jonathan Bennett, President at AmTrust Realty, joined us to discuss his background, the firm’s office portfolio, diversification, lending opportunities, and what he’s seeing in the market.
Daily Beat: Can you please share your background?
Jonathan Bennett: I am very entrepreneurial and initially wanted to work in the high-tech and venture capital world in the late 90s.
I started my career working for a small investment bank that raised money for early-stage technology companies. After a big stock market correction in 2000, I went to work as investment banker at American Express, helping them sell off minority interests in venture capital (VC) companies.
That was the first iteration of Fortune 500 companies creating their own VC arms because they needed to be strategic. They were afraid of getting displaced.
I didn’t love the process because I would spend endless amounts of time doing the spreadsheets, putting together the private placement memorandums, and then things just would fall apart and you would have nothing.
Daily Beat: How did you end up in real estate?
Jonathan Bennett: I always had an interest in real estate, but I thought I was going to make my fortune in banking or technology. My initial plan was to invest in real estate afterwards.
Many of my friends were doing extremely well and weren’t dealing with many of the headaches that I was, so I decided to change course.
Daily Beat: Did you start on your own?
Jonathan Bennett: Yes. I started off putting deals together on my own. My father’s best friend was a big multi-family developer in Williamsburg, and we subsequently partnered to build a couple of rental buildings.
I then segued into an opportunity to work for the Nakash family. I had known them because I had been in their office to raise money as an LP and knew one of the family members from growing up. We clicked very quickly.
Daily Beat: Were they doing deals before you joined?
Jonathan Bennett: Yes, they were partners with Lloyd Goldman, Jeffrey Feil, Tony Malkin on many deals. The family was very fortunate to get involved as LPs with that small group of uber-rich, multi-generational players.
Joe Nakash wanted me to come in to grow the platform and complement that existing business. They didn’t know brokers at JLL, Eastdil, Newmark, CBRE, and Cushman. When I got in there, I spent six months calling every brokerage firm and telling them to send us direct deal flow because we’re now looking to purchase our own assets. This was before the days that Real Capital Markets existed.
Thankfully, we had a great run. We bought properties all over the country across all sectors, including The Setai Miami Beach, Versace Mansion, half a billion dollars of retail properties on the Las Vegas strip, and office buildings in Washington, DC.
Daily Beat: Can you please speak about AmTrust and its current portfolio breakdown? I gather there are a lot of older office buildings, which presents a challenge.
Jonathan Bennett: The portfolio is majority office, but the multi-family share is starting to increase. We’ve been investing in the asset class over the past year and plan on continuing to do so. Half of the 12-million-SF portfolio is in Chicago.
Daily Beat: With your recent acquisitions on the multi-family side out in Phoenix and Tampa, are you looking to diversify the portfolio further? What’s the strategy moving forward?
Jonathan Bennett: I look to companies like Tishman, Related, Brookfield, and Blackstone as examples of success in the industry. We aim to follow their best practices – they have kind of paved the way.
Based on recent market trends, a company like ours can learn from their success and diversify into other asset classes.
The previous leadership was very successful in their role, but chose not to invest in other asset classes and regions. We are interested in continuing to diversify.
Daily Beat: Are any of your existing office buildings ripe for conversion to residential? Costs, path to vacancy, light & air, zoning, floor plates are obviously serious considerations. Matt Pestronk recently told us that the cost savings on these projects are only 10-15%. Ultimately you’re really just benefiting from geography, the structure of the building, and some lesser costs.
Jonathan Bennett: Absolutely. We evaluate every asset and determine if it makes sense for it to remain an office building. The issues you mentioned all make it a challenge.
A lot depends on the existing floor plate, vintage of the building, and if it requires major changes, such as cutting a hole in the middle of it. This can eliminate some buildings as conversion opportunities; however, we are actively evaluating this and considering options such as conversion or demolishing the building entirely for a new development.
Daily Beat: Do you have a lending arm?
Jonathan Bennett: We are not lenders, but we’ve seen a lot of opportunities to do preferred equity that seems to be flavor du jour. Our team has bid seriously on those opportunities, but we have not yet closed one yet.
Daily Beat: I know the Karfunkel family’s primary business is as an insurance company. Many will use the float accordingly to go ahead and lend. Why do you think historically the families chose to go the equity route rather than lend?
Jonathan Bennett: The regulatory issues surrounding the insurance company preclude it. This is a little bit beyond my scope; however, I have regular communication with the president and executive team and they are interested in expanding opportunities through joint ventures with experienced lenders.
Daily Beat: How many people do you have at the real estate arm?
Jonathan Bennett: We have around 140 people in the company. There are 40 to 50 on the corporate side, with the rest managing the buildings. We are vertically integrated and have been doing a lot of hiring –– it’s an exciting time to be here!
Daily Beat: Do you do any public market investing in REITs?
Jonathan Bennett: Not out of this office.
Daily Beat: Are there any specific markets that you’re looking at?
Jonathan Bennett: We love New York and we are constantly bidding on properties in the city. We have experience in other markets such as Nashville, Austin, and Miami. I have bought properties there in the past when there was less competition.
While we are excited about the potential of red states like Florida, we are cautious as well. Markets can change quickly and you have to be prepared.
New York has a special power because of its immigration community. People come to New York with the goal of making it, and that provides an incredible talent pool and labor force.
I’m not sure if other cities like Nashville, Austin, and Miami can replicate that.
We love New York, but we’re also closely watching those markets.
Daily Beat: So it sounds like you avoided overpaying for 3.5 to 4 caps, while projecting unrealistic annual growth rates.
Jonathan Bennett: Yes. I get nervous about things like that. On the flip side, you can buy assets at a lower cost on a price per SF in New York. The yield may not always be there, but we’re seeing resets in the market, which may lead to yield.
Buildings in Manhattan are selling for as low as $500 per SF, compared to a couple of years ago when they were selling for $800 to $1,000 per SF. It’s difficult to say if prices will ever return to those levels on the office side.
Daily Beat: Are you looking at office acquisitions in this environment?
Jonathan Bennett: Yes. We will definitely invest in the office market. The biggest challenge now is the lack of financing available.
As we discussed earlier, we’re also considering providing financing in this market as the lack of lending makes it more attractive for lenders. When you look at just what your all-in basis is as a lender, it gets even more attractive. You can kind of name your price because people don’t want to lend in that market.
There’s a lot of dislocation going on. Real estate markets can change quickly, and it’s easy to look back and think that the opportunities were obvious, but it’s not always clear at the time.
Daily Beat: Some of the existing office buildings on the market are fascinating. How do you see the office sector shaking out?
Jonathan Bennett: The question is also what’s motivating sellers. Are owners motivated? If a seller has a loan that’s coming due and they can’t refinance it, they might have to put in more equity to pay down the loan.
Daily Beat: Blackstone at 1740 Broadway was one of the first.
Jonathan Bennett: The lenders don’t want them. We’re betting on reversion to the mean
and human nature.
Daily Beat: I gather that you’re investing in renovations in your Chicago office portfolio.
Jonathan Bennett: Our approach to the renovations is a heavy lift. We have hired experts like the former head of Tishman Speyer in Chicago and the construction manager for Blackstone’s $500 million renovation of Willis Tower to lead our portfolio.
We’re taking a hospitality approach to renovating the buildings by creating gathering spaces, lobbies, restaurants, coffee shops, outdoor spaces, fitness facilities, lounges and conference rooms to make the buildings more attractive to tenants. Google’s purchase of a 1.3 million-SF building in the heart of Chicago was a big boost to the market.
*The interview has been edited and condensed for clarity.