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Lefrak focuses on opportunistic real estate investments into high barrier to entry markets
Key Takeaways
- Harrison LeFrak, Vice Chair and Principal of Lefrak, discusses his family's long-standing investment strategy into opportunistic opportunities in commercial and residential real estate in the tri-state area and Florida.
- LeFrak invests in high barrier to entry markets - such as Manhattan - and where there is reason to believe demand will be high but supply will be unable to increase to meet it.
- Ultimately, they're optimizing for capital preservation and both want to and have been able to endure crises successfully and come out the other side, able to take advantage of favorable pricing.
Transcript
Hi, I'm Harrison LeFrak, I'm a vice chair and principal of Lefrak. I'm a fourth generation member of my family's business, which was started in 1891, so we've now been in business for 120 years and our business started and primarily consists of real estate and in the New York metropolitan area, New York and New Jersey. And over time, we have expanded our real estate business nationally to include properties on the east and west coast of the United States. And the property types that we engage in include apartments, office, hotel and retail.
Our company has really focused on two things. Number one, the markets that we participate in predominantly have very high barriers to entry. It's not that easy to wake up in the morning and say, I'd like to build an apartment building in New York or I'd like to build an apartment building in San Francisco. There are approvals, there are permits. You have to buy an expensive piece of land and then getting the logistics accomplished to building the building is not that easy either. And we have focused on those markets where we think that there is gathering income and wealth because real estate is a mirror. It reflects the income and wealth that sits upon it. And where you have gathering and increasing income and wealth, you will have appreciating real estate with growing rents and growing capital values and where there is a barrier to entry to make it hard to add too much to the supply of that real estate and franchises, the value of that real estate and keeps it relevant for investors and for investment for a long time.
So lately we've been very, very interested in building and buying real estate in South Florida, because especially with the recent pandemic, people have more and more shown an interest in living and working and raising families and retiring in South Florida more than ever before. And because of the traffic situation in South Florida, which you have the roads and they're only built for a certain population, it's harder and harder to keep adding apartments there because it's harder and harder for people to get around. So there is a barrier to entry established by the traffic patterns and there is gathering income and wealth. And I think that the trend in South Florida for rent growth and for real estate appreciation was given a catalyst by Covid will continue and will be a trend that will be here to stay for for many years to come.
We try to create our position in real estate through opportunistic acquisition, through rehabilitation and through ground up development. But the way we measure our returns and outcome with our real estate is can we hang on to it? Because every seven or eight years it seems like something really bad happens. And the real talent in real estate is not outperformance during good times. It's preservation of capital during the bad times so that you're intact with your buildings when the good times happen and you could be in a position still to still be in business to benefit from them when when things heal and when things are better. And being able to stay invested requires two things. Number one, a good capital structure where you've borrowed not too much money, not too little money, just the right amount of money to give you a good leverage return, but not to create a situation where you impair your capital. The second important discipline is understanding what you own, because if you understand what you own, you also have the confidence to stay invested during the down times. That gives you the freedom, the flexibility and the opportunity to enjoy returns from that real estate on the happy times and the good times, the times that you get the extra returns by being in a position to always stay invested and stay with your assets.
Important disclosures
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