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For This Experienced Group, Now Is Not a Bad Time to Invest in Real Estate
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"Our approach and our strategy has always been that what we want to look at is sustainable cash flow from the properties," he said.
The new fund, called FCP Fund I, LP, has a 10-year horizon in which to buy and sell real estate, and to make distributions to its investors. FCP investors include pension funds, endowments, wealthy families and individuals, and financial institutions.
Many of their investors can participate even more in the transactions, which could easily double the amount of equity they can put in some properties.
On top of that, Korhonen said FCP has a line of credit with a consortium of banks, led by J.P. Morgan Chase, that will allow it draw on more money to make deals. In addition to property, the fund will look at buying distressed loans or helping to finance deals with other real estate operators.
Korhonen said he and his team also will be looking at assets and loans that may come up for sale from the recently passed $700 billion federal bailout.
Korhonen's approach to real estate is similar to that of investors who are looking for deals on beaten-down stocks. He said FCP is poised to scoop up real estate at below-market prices.
"Given the environment today, and where we are looking at asset values declining, because we have dry powder we will be able to buy assets as they are revalued. Today, capital is scarce. Cash is king. As a result, we have capital, we are nimble. We have local market knowledge, good relations with lenders and we have flexibility. We are extremely well positioned for a difficult and credit-constrained market."
But what if everything goes south?
Korhonen has faith in the business cycle.
"It's difficult to call,'' he said. "It certainly looks like 2009 and 2010 are going to be difficult. There are a lot of issues . . . Ultimately, I think the government and [Federal Reserve] intervening, we will see some bottom in prices and ultimately see a ramp-up. The question is how long does that escalation in value take?"
Thomas Heath's "Value Added" column focuses on Washington's entrepreneurial set. It runs weekly on the WashBiz Blog athttp:/
