By: Bob Craig February 10, 2012
(Crain's) — After agreeing to sell his shopping center portfolio for $1.43 billion, Alex Berman is back out in the market scouting for more deals.
Mr. Berman's Skokie-based firm, EPN GP LLC, which acquired the 47 shopping centers last year, last month decided to flip them to a joint venture of New York-based private-equity firm Blackstone Group L.P. and Beachwood, Ohio-based retail real estate investment trust DDR Corp..
The sale will generate a roughly 66 percent gain in less than a year, but leaves EPN with just two shopping centers. Mr. Berman says he's already meeting with property owners trying to find new acquisitions.
“It is always hard with an investment to know when to sell, and it is very hard to sell at the very peak of the market,” Mr. Berman says. “You may have a little bit of regret. At this point we think we've made the right move.”
The former head of General Growth Properties Inc.'s overseas investment arm, Mr. Berman, 52, formed EPN in 2009 with the backing of Elbit Imaging Ltd., a Tel Aviv-based conglomerate.
In a recent conversation, Mr. Berman discussed his future plans and his outlook on the real estate market. Here's an edited excerpt from that interview:
Crain's: What is next for EPN and for Alex Berman?
Mr. Berman: Well, in some ways, it's a reset. Now we're back looking at opportunities. We are expecting to talk to more investors. We haven't started the formal process, but we expect to do so.
We are in a much stronger position today than we were two years ago, when we had capital but no team. I was the only person. Now we have a team. It's small, but it's a group of people who have worked together, who know each other and we have this proof of being able to buy and sell. I don't expect it to be easy, but I hope it is a little easier and maybe a little faster.
What was it that made you decide to sell that quickly?
There were a couple of reasons: One, and perhaps a more humorous answer, is that some people have told me that you can never go broke by taking a profit. We created value, and locking in value is not a bad idea. There are certainly many examples of people who stay longer and value evaporates. So that was one consideration.
We think our strength is in finding special situations, and perhaps applying our money elsewhere we will find — we certainly hope we will find — some investments where we can create value at a greater pace than we would have had we stayed in this investment longer.
The second reason was that we actually entered this business in 2009 and our idea was to get into management and invite some other investors to invest with EPN. We are a fairly new company and a number of these potential investors told us that we have to show that not only can we buy, but that we can also sell — and sell at a profit.
How do you view the retail property market over the next 12 months?
On the fundamentals, I think we're still in a little bit of a challenging situation. The leasing and strength of tenants is certainly better than it was in 2008 and 2009, but it's still not the market where the landlord has an upper hand. Whenever you get involved in leasing space, tenants have significant requirements and there's competition and rents have not increased as significantly as landlords hope.
I think that challenge will continue. I actually met with several owners last week and they share the same view. You have a little bit of an overhang from Internet shopping and everybody watches that.
How did the Blackstone deal come together?
Basically DDR, who was our asset management partner on the deal, and they own a small share of the company. When we decided to sell we told them we were thinking about it and they actually approached Blackstone. We could have approached them on our own, but they approached Blackstone because they had interest in staying in the deal and they came to us as a partnership to buy. The news is more about Blackstone, because they got the greater share of the deal, but it's really a partnership of DDR and Blackstone that is buying it.
