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The way Jason Isaacson sees it, if a pension fund or other institutional buyer has $1 billion — give or take — to invest in Florida commercial real estate, it'll likely need some help.
That's because most institutional players tend to gravitate to so-called gateway markets in the U.S. when deploying capital into commercial properties. It's just easier to spend money — especially large amounts of money -- in major cities like New York, Chicago, Los Angeles or Boston. As a result, institutions tend to
understand those markets pretty well.
The converse to that is, however, when cap rates get compressed and those same buyers look to alternative markets to buy into to generate yield, or want to gain entry into the Sunshine State's burgeoning economy, they're often unaware of nuances or underpinnings that could cost them dearly.
That's where IP Capital Partners, the firm Isaacson and partner Josh Procacci formed in 2012, comes in. It partners with institutions to acquire properties in a select group of Florida markets — Tampa, Orlando, Jacksonville and South Florida — to unearth deals on undervalued office and industrial buildings.
“There's a lot of institutional capital interested in commercial real estate in Florida right now, but they have two problems: finding qualified partners and achieving scale,” says Isaacson. “Tampa and Jacksonville are relatively small compared to New York and Chicago, for instance. So if you have $1 billion to invest, it's going to be harder to find individual assets.”
IP Capital also differentiates itself by only hiring people who have experience with institutional investors.
“We know the level and kind of service that institutions need,” says Isaacson, IP Capital's president, who began the company after stints at Cypress Creek Capital and the Trump Group, a family-led investment firm that is not connected to U.S. President-elect Donald J. Trump or the Trump Organization, of New York.
In all, he has been involved with buying or selling more than $5 billion worth of commercial real estate.
In many cases, Boca Raton-based IP Capital will seek out neglected properties in solid areas and deploy capital for improvements with the goal of selling for a profit.
Such was the case at 501 E. Kennedy Blvd. in Tampa. IP Capital and partner Silver Cos. bought the 19-story office building in early 2014 for $30.36 million, and set out to add value.
The pair put in a new fitness center and conference facilities and made upgrades to heating and air-conditioning systems, elevators, roof and lobby.
After the improvements were completed, IP Capital and Silver sold the 300,000-square-foot building in February for $42 million.
“Someone made us an offer that would have put a lot of money in our investors' pockets, and we took it,” says Isaacson, 41. “That's our goal for our investors. We're fiduciaries.”
IP Capital hopes to replicate those results at a pair of recently acquired properties in Tampa's Westshore business district.
The company bought Westwood Center, an eight-story, 129,000-square-foot building at 2002 N. Lois Ave., for $12.6 million. Airport Executive Center, a
235,000-square-foot, 13-story building at 2203 N. Lois Ave. with a connected six-story parking garage, fetched $28.85 million.
Both buildings, which had been owned by Wilder Corp., are slated for major upgrades. Isaacson expects to plow more than $10 million into the two buildings to modernize lobbies, elevators, restrooms, exteriors and roofs.
The deal gives IP Capital “an excellent opportunity to bring the property up to a Class A status with market rents, all resulting in increased value,” says John Gerlach, a Colliers International Tampa Bay vice president who brokered the Airport Executive Center sale for Wilder.
Isaacson contends the two properties — Westwood is about 30% vacant while Airport Executive has about half its space available — will be an attractive alternative to other nearby office properties.
“We're going to change the profile of those buildings. They represent a great value, and they have the best location in Westshore,” he says. “Everything in that proximity rents for $30 per square foot or more, so we're going to provide something that's missing from that submarket.”
He expects rents in the two buildings to range from $24 per square foot to $26 per square foot.
IP Capital applied the same thinking in buying the seven-building Center Point Business Center in Tampa in a roughly $20 million deal with MetLife.
“We liked the price, the property's story, the location,” says Procacci, IP Capital's chief investment officer who also worked for investment firm LNR Partners in Miami and consultant Booz Allen Hamilton before forming IP Capital. “It was just solid real estate principals of investing.”
Mercedes Angell, a senior director with the Tampa office of commercial brokerage firm Cushman & Wakefield, says IP Capital also excels on the service side of the real estate business, as well.
“They're very, very tenant focused,” Angell says. “They have what they describe as a 'Ritz-Carlton approach' to tenant services - they want to make their tenants happy. And they're very entrepreneurial. They know how to make deals.”
That knowledge extends to IP Capital's relations with its institutional partners. An initial investment fund it created bought $450 million worth of commercial properties, and a second, which closed in September, will ultimately buy up to $700 million worth, Isaacson says.
In keeping with the firm's overall strategy, IP Capital intends to limit its acquisitions to Florida.
“We'll continue to focus on the Florida markets we've identified because one of our core beliefs is the closer you are to a market the better you know it,” Isaacson says. “We'd rather be experts at a few things than mediocre in many things. And that gives us a unique competitive advantage. We know the risks in most cases and can properly assess values, and we can make quick decisions because of our lean corporate structure.
“Over the last decade, we think we've only just begun touching the potential of Florida's rare economy,” he adds. “We think there will be plenty to do here for some time to come.”
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