It largely goes without saying that unprecedented times lead to both unprecedented risks and opportunities. As specialists in the NYC office market, our job is to mitigate these risks as much as possible, while taking advantage of opportunities that have been created.

1. Core Gateway Office Markets Provide Value Protection and Offer the Most Liquidity in All Economic Environments

Research by Newmark Knight Frank show that core gateway markets offer the most liquidity in all economic environments and provide substantial value protection in recessionary periods. In the global financial crisis, the core CBD office markets not only recovered to peak pricing in nearly half the time of their office market peers, but gateway office pricing was more insulated.

2. Opportunity to Enter the High Barrier Office Market at a Good Basis

As Warren Buffett says, ‘Be fearful when others are greedy. Be greedy when others are fearful’. While use of the word ‘greedy’ during a pandemic may be a bit strong, the broader point is that (like the virus) panic and fear can be contagious. We expect to see a combination of panic selling and forced sales, which will present opportunities to well-capitalized investors who believe in the long-term fundamentals of NYC office.

While New York is certainly being impacted, the city has been through periods of extreme uncertainty as recently as 9/11 and the Global Financial Crisis (GFC) and has always recovered. We don’t pretend to know what the next few months or even years will look like, but we have high confidence that New York will recover to be as strong as ever.

3. NYC Office Prospects Remain Strong with a Healthy Balance of Supply and Demand

NYC was voted one of the top two gateway centers best positioned for office investment growth. It is based in part on a strong correlation between robust working age (25-45), population growth and income growth to office rent growth. NYC’s diversified tenant mix, consistent leasing velocity, and dynamic submarkets should continue to present a compelling environment going forward.

Tenants needs may shift as the real estate market adjusts to a ‘new normal’, but the fundamentals that attract employers to NYC are expected to remain strong.

4. Limited Supply and Oldest Stock of Buildings of Any Gateway City

Given its dense and developed real estate infrastructure, substantial equity capital requirements, and extensive project approval processes, NYC is structurally characterized by high barriers to entry which limit the delivery of competitive new supply. Additionally, office ownership in NYC is highly fragmented with the majority of assets are controlled by smaller owners, primarily local families or individuals who lack the capital and market expertise to manage and/or reposition assets to an institutional standard. 72% of office buildings have not been sold in the last 50 years. The result is that NYC has the oldest stock of buildings of any gateway city with an average age of over 60 years and only 9% of buildings below 150,000 sf have been fully renovated.

While we strongly believe in the long-term fundamentals of New York City, our bullishness is really a specific segment of the market. Point #5 above is what we believe continues to drive the most compelling opportunity for investors and is where we focus our attention.

1. KPG is the “Tesla” of Office Buildings, Repositioning of Boutique Office to Meet the Needs of the Modern Workforce

Our design-forward brand attracts and retains the modern-day workforce allowing us to quickly stabilize to Class A rents and exit investments at a premium.

KPG offers amenity-driven space that’s often not available to smaller tenants. This includes a focus on health and safety that many other small office buildings are not able to provide, including an innovative ‘touchless’ environment in a post-COVID world. KPG has seen a significant increase in interest full-floor or full-building inquiries as tenants look for better control over their environment.

The average percentage rent increase from previous owners is approximately 86% compared to an average 8% increase for the Midtown South market.

2. Hyper-Specialized Strategy Targeting Niche, Boutique Office Buildings in Supply Constrained and High Demand Areas

We focus on repositioning boutique office to meet the needs of the modern workforce. We target supply constrained and high demand areas in the right locations at the right price and have established a midmarket fund platform that provides to access niche assets that would otherwise be inaccessible to institutions.

3.True Off-Market Sourcing Capabilities

Relationships and off-market sourcing capabilities aimed at the middle market with limited institutional competition allows KPG to create value at the time of acquisition

4. Focus on Special Situations Resulting from Market Dislocation

Given our specialized focus and broad relationships within New York City, KPG is able to continuously scan for market dislocations and special situation opportunities to acquire assets below replacement cost and above historic cap rates.

5. 100% of Deal Level Promotes Flow to Fund Investors, Creating Better Alignment

KPG fund investors receive 100% of deal-level promotes, so we only make money when our investors make money.

6. Limited market exposure through short duration business plans and exit discipline

We view our value-add as the ability to transact and execute business plans quickly and effectively. This approach creates value while reducing market exposure risk.