Q&A: Finmarc Management’s Neil Markus Discusses Acquisition Strategy

In the past several years, Finmarc has transacted more than 30 assets with a combined value of nearly $700 million. For instance, it acquired Frederick Corporate Park, an 11-building portfolio comprised of nearly 440,000 square feet of single-story flex/office and two-story commercial office buildings in Frederick, Md., for $43 million.

For 2021, it has big intentions on the acquisition front.   

Neil S. Markus, Finmarc’s principal and managing director, spoke to Commercial Observer about what’s in store.

Commercial Observer: Characterize Finmarc’s strategy for 2021 in the mid-Atlantic region. 

Neil S. Markus: Our goal is to acquire $350 million worth of commercial real estate assets in 2021 to add to our existing portfolio approaching 7 million square feet of space. With a number of asset sales occurring in the near future, our company will significantly add to our existing cash reserves, and we will be seeking appropriate 1031 exchange opportunities.

Are you optimistic about the market?

While certain investors have lost faith in commercial real estate, we believe in its short-term and long-term fundamentals, and [we] are certain tremendous opportunities will present themselves. We are optimistic about all asset classes and will consider properties based on many factors, including the health and economic realities of the micro-market.

Retail was performing tremendously well pre-COVID-19, and it is still doing great in certain places of the country. In others, retail is not as strong. When we identify the right opportunity, we will not hesitate to jump at it.

When looking at that $350 million in assets, what product types are you looking most closely at this year and why?

We are bullish on all asset classes, including retail, single-story and multi-story commercial office, flex/industrial, warehouse and adaptive reuse. Industrial product is obviously hotter in the current economic climate, but we intend to pursue all the different assets and will not be hesitant when we uncover attractive opportunities. We are especially interested in underperforming properties that provide our team opportunities to build value with proven leasing and asset management tactics.

Why is the mid-Atlantic area a focus for the company?

Finmarc is based in Bethesda, Md., and we have always focused our efforts in the suburban Maryland, greater Washington, D.C., metro and Northern Virginia region with assets stretching from New York to central Virginia. We believe in the fundamentals of the East Coast and have a deep understanding of the market. North Carolina is now on our radar and we are not ruling out opportunities in that section of the country. We particularly like the greater Washington, D.C., area, because we believe the economy is traditionally healthy as supported by the tentacles of the federal government. 

Talk about your current portfolio — what is it comprised of today?

Finmarc Management presently owns and manages a portfolio approaching 7 million square feet of commercial properties located in Maryland, Washington, D.C., Virginia, Delaware and Pennsylvania. The portfolio is comprised of retail, office, flex/industrial and adaptive reuse assets.

What attracts you to a certain property?

We are particularly searching for underperforming assets with trapped value that provides our team the opportunity to improve leasing and property management processes that yields increased cash flow and higher value. We consider its location, tenant mix and condition of the physical plant, and are most interested in long-term, cash-flowing assets.

Can you talk about some recent deals that fall under your strategy?

Our acquisition criteria primarily focus on the strength of the submarket demographics, existing population density and the potential for growth, as opposed to the greater macro-market conditions. By way of example, we pursued assets in the Norfolk region based on the densely populated, southeast Virginia area, as well as acquiring Frederick Corporate Park, a 440,000-square-foot flex/office portfolio in Frederick, Md. 

We were especially interested in Frederick because we believe in its long-term growth potential, while functioning as a business hub serving both the Baltimore and Washington, D.C., metropolitan regions. Numerous fundamentals exist in the Frederick region that provide us with extreme confidence to elevate the corporate park to full capacity. These factors include a diverse and highly skilled labor market; proximity to Washington, D.C., and the economic tentacles of the federal government; the existence of a high-technology community; reasonably priced housing; and a high quality of life.

How has the pandemic changed your thinking over the course of the last year?

Our corporate philosophy was always to invest with a long-term view and the pandemic has solidified this thinking. Investors rarely say they made a mistake acquiring a particular real estate asset, and we trust our decisions, and understand economic and real estate cycles. Real estate always bounces back. The pandemic has made us review all aspects of our investment criteria to determine the best investment criteria to move forward, and we see significant signs that things are reverting back to normal.

What would be considered a successful 2021 for the firm?

Our goal is to acquire $350 million worth of assets and believe we can achieve this objective. The combination of continued low interest rates, a rapidly improving economy, and pent-up demand after abnormally slow transactional volume last year are prime factors fueling our acquisition program.

What makes Finmarc unique?

Finmarc is a privately held company, and not beholden to investment committees or a board of directors that elongate decisions. This nimbleness allows us to react quickly and decisively. We view our private, internal capital as an advantage as we are not constrained by a time period for holding an investment or defined internal rate of return goals for any investor or partner that other companies may have.