Lubert-Adler bolsters deal pipeline

Real Estate Alert, Feb 4, 2004

A joint venture that Lubert-Adler Partners formed last week should provide a steady pipeline of investments for the company's latest opportunity fund.

Philadelphia-based Lubert-Adler is teaming up with Acadia Realty and Klaff Realty to invest $300 million of equity to reposition struggling big-box stores over the next two to three years.

While Acadia will supply $60 million of equity, the remaining $240 million will come from Lubert-Adler and Klaff. Chances are Lubert-Adler will supply the lion's share of that portion, given that it has a brand new $1.1 billion fund to invest.

The joint venture will use 70% leverage, giving it total buying power of $1 billion. All three firms are experienced at finding and turning around big-box stores that have upside potential because they are poorly managed, need renovation or repositioning, or are owned or leased by bankrupt retailers.

In fact, Lubert-Adler and Chicago-based Klaff have teamed up on numerous occasions, with Klaff frequently sourcing and/or participating in Lubert-Adler's big-box turnaround strategy. Acadia, which is based in Port Washington, N.Y., has participated in deals with each of the other partners as well.

"There seems to be a never-ending supply of retailers that are getting themselves in trouble," said Acadia spokesman Jon Grisham. "There does seem to be a good supply here for deals regardless of the economic cycles."

Each partner brings strengths to the relationship. Klaff is best at ferreting out opportunities. Acadia specializes in redevelopment and turnaround angles. And Lubert-Adler, while good at those angles, also brings deep pockets to the table.

The venture comes at an opportune time for Lubert-Adler. The firm began soliciting capital for Lubert-Adler Real Estate Fund IV last summer. Initially aiming for $850 million of equity, Lubert-Adler within months attracted $1.3 billion of commitments, which it scaled back to a more manageable $1.1 billion.

Nevertheless, Lubert-Adler's typical deal flow--which includes numerous small portfolios--left some observers wondering how the firm planned to deploy even the scaled-back amount within a three-year investment period. Among opportunity funds, the mantra of late has been that smaller fund sizes are better in case there aren't enough suitable opportunities to go around. But the joint venture will quickly kick the Lubert-Adler fund's investments into high gear.