Albany Road Crests $1B in Assets, Prepares to Launch $250M Fund III

As reported in The Real Reporter by Joe Clements

BOSTON, MA— With holdings now stretching from coastal Maine to the Lone Star State and aims for future west-ward expansion, homegrown Albany Road Real Estate Partners is celebrating a major metric—$1 billion in acquired CRE — on a trek begun buying a struggling New Hampshire retail plaza, an $8 million deal that closed in summer 2012 launching a platform now backed by hundreds of net worth investors that encompasses nine million sf of CRE in various iterations following 10 purchases for its $175 million Fund II. “It’s a pretty cool story,” founding principal Christopher J. Knisley concurs to Real Reporter in describing the fast-track financial feat as “an exciting milestone for all of us” while further deeming the achievement noteworthy “because it reinforces how acutely in tune we are with the real estate investment objectives of our limited partners, and shows that our mission to provide best-in-class real estate investment management services and results is being met.”

Putting Albany Road over the $1 billion threshold was its $47.6 million purchase of The Centerpoint Portfolio in Arlington, TX, a quartet of first-class office buildings totaling 412,520 sf funded through SunTrust Bank via a five-year, $33.3-million mortgage at an interest rate of 4.4 percent.

Cresting $1 billion in gross assets was not the only advancement this past season for the firm Copley Real Estate Advisors alum Knisley founded seven years ago with Deerfield Academy classmate Mark McInerney plus colleagues Clark Callendar and Steven Strandburg, the motivation being New England’s nascent recovery from the 2008 recession they felt would present viable CRE opportunities for those with sufficient capital to nimbly pick up the “cream of the crop” in a discounted climate.

“We have come a long way since launching the firm,” observes Knisley, the operation run out of four offices nationally following the recent opening of an outpost in San Francisco, the others being in Nashville and Dallas on top of its downtown Boston nerve center. To service the expanding footprint, Albany Road has just welcomed its 20th employee to join inaugural hire, Gail Hardy, and “third in the door” recruit Mark J. Tryder, today manager of the Northeast holdings after arriving just six months into the firm’s kickoff. Hardy is Investment Relations Manager and Chief Compliance Officer.

Albany Road favors Middle Market CRE between $20 million and $50 million, a realm the founders identified as “fertile space” seen as too pricey for many private operators and not large enough to sate institutional appetites, thereby limiting competition and yield compression. The strategy favors tertiary markets which have attracted institutional investment yet where product can be had at a discount to replacement cost, often sporting upside through development plus the firm has a seasoned asset management foundation honed by founders possessing over 120 years of collective experience in the CRE, technology and venture capital realms.

“It is a formula where we have been able to find good opportunities,” says Knisley, whose experience buying variant CRE classes has served the broad-based program well, his retail acumen finding value in the underwater 129,000-sf New Hampshire shopping center which was ultimately harvest- ed in July 2015 reaping a whopping 28.3 percent net realized total return while the niche strategy is credited for delivering similarly hefty results across the industrial, office and specialities fields such as healthcare and self-storage.

According to com- pany analysis, investments for 2018 averaged a net 10.9 percent cash distribution for an investor who contributed the same percent- age of equity in all 39 transactions since the firm’s inception, with its portfolio-wide rate since Amherst Crossing averaging 11.6 percent. Many of the investors are repeat contributors, including several who have rolled proceeds from realized deals into new purchases.

Enabling its growth beyond New England has been the Albany Road Real Estate Fund II which closed a year ago with $175 million committed, and plans are underway to introduce a third fund this season (see related story Page 66) after scooping up 10 properties for the second initiative. Fund I was for a self-storage investment program begun in 2012 that ran until 2015 when it was determined an overheated market made conditions ripe for a sale and leading to its $39.3 million trade of self-storage holdings in Connecti- cut and Massachusetts initially bought in five transactions for a total of $27.6 million.

Albany Road has pruned its portfolio in select instances, generally after a stabilization or value-add program whose sale is seen delivering a better result for investors. Besides a partial harvesting this past summer of an Exeter, NH, asset, realized investments rose to six with 2018 dispositions of Fourth & Church and the KBS Portfolio, both in Nashville, the former a 265,000-sf office tower in Music City’s CBD which was purchased five years ago at a consideration of $33.7 million ($127 per sf) then traded at $165 per sf, i.e. $43.9 million, its capitalization rate dropping under 6 percent after the prior purchase was bought at a 7.4 percent rate. Net cash- on-cash returns averaged 10.3 percent over the holding period, while the total net IRR to investors was 18.3 percent.

Bought the same time as Fourth & Church, the KBS Portfolio is a 413,000- sf suburban flex/office development that fetched $41.2 million (8 percent cap rate) and price per sf of $100 per sf versus the $33.3 million (9.1 percent cap rate) Albany Road had spent in spring 2014, or $81 per sf. Net IRR achieved was an impressive 19.6 percent with net cash-on-cash returns averaging 14.9 percent.

“They have done exceptionally well,” remarks CBRE principal Douglas Jacoby, CRE, whose Capital Markets team he leads with colleague Scott Dragos orchestrated a pair of notable Albany Road investments over the past three years, one a five-building industrial listing scattered throughout Massachusetts, and this past autumn they were agents on a MOB portfolio Albany Road spent $21 million to acquire (see related story Page 64).

With prior stops at Newmark Knight Frank, Hunneman and Colliers International before being recruited last year by CBRE, Jacoby and Dragos have been immersed in the same evolving CRE environment as Albany Road this decade, one that began in recovery mode and today has emerged as one of the most sought-after markets in the US. Jacoby credits Albany Road for “rising above” its competition using a “disciplined” and “informed” strategy to win targeted opportunities.

“Chris is a bright guy who has the institutional background, and he has been around the market for a long time,” notes Jacoby, adding, “I’m really not that surprised” by the rapid growth of Albany Road’s footprint to become among the area’s most active investors and now claim title to being a $1 billion enterprise.

“They have a good approach and are very hands-on,” says Jacoby, a Counselor of Real Estate (CRE) who says the key to consistent performance and bringing IRRs towards or above 20 percent requires a combination of adroit due diligence and ability to close on a deal; having the financial capacity to secure favorable leverage as needed; and enhancing am asset’s worth by identifying value-add components such as development or increasing ancillary revenue such as parking or leases to telecommunications companies.

“You have to be doing a lot of things right to get near 20 percent” IRR, observes Jacoby. “It is really impressive what they have accomplished.”

Knisley credits a combination of Albany Road’s focused strategy that has been in place since the outset, bringing an integrated approach in buying, leveraging and managing its holdings and keeping pace with the expanding footprint via opening additional offices and hiring qualified personnel, the latter element seen as especially important by Tryder. “We have been keenly focused on hiring—and retaining—the best talent in the industry to manage our assets, execute our real estate strategies and service our high net worth and family office investors, who are the lifeblood of our company,” relays Tryder in adding that, “Maintaining an appropriate professional-to-asset ratio is something we are particularly mindful of, and ‘It’s all about our investors’ is a refrain that each of us lives by.”

Along those lines, the firm recently hired Brandon Hoag to oversee asset and portfolio management for the Southeastern US portfolio, he a 20-year industry veteran who has held similar roles for portfolios throughout the Midwest and Southwest, most recently as a principal with RED Development in Phoenix. Hoag possesses a Finance Degree from Abillene Christian University and MBA from Southern Methodist University.

Albany Road added three more employ- ees over the past year in Kate Hoffman for its Investor Relations group in San Fran- cisco; Ashlin Hamilton as an Investment Associate in the Southwest region; and in Boston, Andrew Verbinnen has come on board to handle portfolio analysis of the Northeast holdings. Hoffman is a Pepperdine University alum who brings a quarter-century of management and investor relations experience to her role; Hamilton performed asset management and development services for a Chicago firm that brought her to Nashville to work on a large mixed-use project; and Verbinnen is a Hamilton College graduate who comes to Albany Road via Tishman Speyer.