Ackman-Ziff’s Russell Schildkraut Discusses What’s Driving a Busy Year-End
As interest rates rise and the year’s end beckons, borrowers are hurriedly closing transactions with a myriad of willing capital sources. As such, the past 30 days have been especially busy for Russell Schildkraut, a principal at Ackman-Ziff, although 2018 has been an active year in general for the advisory firm. In addition to building out its investment sales practice, Ackman-Ziff has been wrapping up significant debt deals from coast to coast.
Recently closed transactions include a $380 million construction loan for The Highlands, Penzance’s 1.2-million-square-foot mixed-use transaction in West Rosslyn, Va. (with Mack Real Estate Credit Strategies as lender); a $160 million loan (also with Mack) and equity investment from Square Mile Capital Management for the conversion of the former U.S. Coast Guard headquarters in Washington, D.C.; and a $155 million CMBS loan for Fifteen Group’s Wyvernwood Apartments multifamily complex in Los Angeles (with UBS as lender).
Commercial Observer caught up with Schildkraut between deal closings to hear what industry trends he’s seeing as 2018 draws to a close.
Commercial Observer: Ackman-Ziff has had a busy year, between debt placements, expanding your investment sales platform and integrating Opportunty Zone Fund liquidity in to your joint venture equity practice. What’s your overarching business strategy?
Russell Schildkraut: We’re always trying to look forward. It’s our job to figure out what can be done in the capital markets, as it’s not always what is currently being done. In many cases the value-add service we bring in is figuring out what can be done. We try to look at both micro and macro trends, such at the supply and demand of capital and overall industry appetite. Like everyone else, we’re looking at Opportunity Zones, what the regulations mean and how we can play in them.
What are some of the industry trends you’re seeing right now?
There is a supply and demand imbalance in the capital markets; there’s a lot of capital out there and not a lot of opportunities to invest that capital. So the space that we play in—which tends to have pretty desirable sponsors and quality real estate—is very well positioned to attract a multitude of capital sources. That has continued to be a big trend we’ve seen throughout the year and something we’ve been able to capitalize on.
How did you get into real estate?
My father actually has a small real estate business, he owns properties, so I was always interested in the sector. When I got out of college I bought some small buildings. I was a certified public accountant by background but I specialized in real estate. I then went to New York University for real estate, met Simon [Ziff, Ackman-Ziff’s president] and I’ve been [with Ackman-Ziff] since then.
How did you first meet Simon?
A professor at NYU introduced us. I knew I wanted to do something on the transaction side and on the finance side specifically. So I met with Simon, and here I am—21 years later!
How has the real estate industry evolved over those past 20 years?
I think it’s become a much more sophisticated business. And in order to win business in our part of the industry we have to be more sophisticated than ever. It’s always been a very competitive industry, so to me there’s nothing new there, but the level of sophistication that’s out there is different. You have to continue to be increasingly cutting edge, much more so than 20 years ago. Back then, you could win a meaningful piece of business by yourself as one person; today it takes a team to both win and to execute business.
Is that because today’s transactions have reached new levels of complexity?
What has kept Ackman-Ziff busiest this year on the debt placement side, and what are the key differences when comparing 2017 to 2018?
No two years are the same, and I’ve learned that over the past 20 years [laughs]. Last year we were extremely busy on the construction loan side, this year we’ve been busy with a mix of construction loans, joint venture equity and what we’re calling “bridge-off-construction” or “permanent-off-construction,” loans. So, when construction is done, the asset is pre-stabilization and the sponsor wants to recapitalize the deal in some way.
So are these loans the theme of 2018, would you say?
I, in particular, have been doing a tremendous amount of these transactions throughout the year, and the firm has as well. I’m currently in the market with a couple of those deals, very large loans totaling more than $1 billion. We track our construction loans, and it’s really a matter of when they are [maturing]. There’s a confluence of factors driving these deals; we’re in a rising interest rate environment right now, we have very strong capital markets and a lot of projects are coming off construction loans.
It feels like there’s a ton of deal flow being pushed through before year end.
Yes, I’m probably the busiest these past 30 days than I’ve ever been in my 21 years in the business. Rates are definitely a big factor, as is volatility in the stock market and a concern that people should be locking [deals] in.
In terms of the capital sources you’re working with, how has the traditional to nontraditional balance been in 2018?
Every year we have a pretty equal balance of traditional and alternative lenders in our roster. A lot of our competitors close a significant amount of business with a very small amount of lenders. We—on the other hand—have a lot of dispersion among capital sources.
You’ve been arranging some significant financings in Washington, D.C. and Philadelphia. Which other markets have you been active in?
Yes, we continue to do a lot in D.C., Philly, New York and San Francisco and also a fair amount in Denver, Portland, Seattle, L.A. and Miami. Those are really the hot spots for us in terms of markets. New York is as competitive as ever, but it’s still where people want to put capital.
Many of those deals were construction loans; what’s key in getting a construction deal over the finish line today?
Sponsorship, location, business plan and how the capital is structured. I really think it comes down to having quality real estate and an experienced sponsor rather than the asset type, because I’m doing hotel construction, mixed use construction—which has a mix of rental and condos and retail—and these transactions are all getting done. How the capital stack is put together is also very important.
How does Ackman-Ziff stay ahead of its competitors?
We have many great competitors, and I’d say we’re all getting our fair share of deals. In terms of our competitive edge, we’re a very high touch and value-add firm and we’re financially sophisticated. I think—especially when it comes to more complex transactions—our clients really appreciate that.
Does anything in the market keep you up at night?
Plenty of things keep me up at night [laughs], but no—nothing in the real estate market specifically at the moment.
How is your year-end pipeline shaping up?
We’re on track for another very strong year. We have a lot of very exciting and very large deals that we’ll be closing between now and the end of first quarter 2019, so I’m looking forward to seeing them close!