Hedgies Still Paying Record Rents In Greenwich

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If you think hedge fund investors are pissed about subpar returns, gated redemptions and high fees, wait until they hear what some of their managers are paying in rent. Despite the sputtering economic recovery, some Greenwich-based hedge funds continue to pay over $100 per square foot for space at the best location in town, One Hundred West Putnam. One firm in particular is paying over $600,000 a month, while another spent over $10 million on renovations and never moved in.
Who benefits most one might ask? Greenwich-based Antares Investment Partners, run by partners Joe Beninati, 45, and Jim Cabrera, 46. The firm and its founders have been the subject of a three part series on its torrid rise and fall in the Greenwich Timelast week.

Strategic Value Partners, run by Victor Khosla, signed on first with a seven-year lease right after Antares closed on its $130 million purchase of One Hundred West Putnam in the spring of 2007. According to documents seen by Dealbreaker, SVP is paying $103 per square foot for 44,065 of space on the 2nd floor. They moved into the space in October 2008 and started paying rent this April at a staggering rate of $378,000 a month. By virtue of being the first to sign a lease under new ownership, SVP appears to have gotten the best deal. Hopefully investors have forgiven SVP's negative 18 percent performance from 2008. Khosla's performance is slowly turning around, as the $3.5 billion-in-assets firm is now booking a positive 4% YTD return on its $2.4 billion flagship SV Restructuring Fund, as of July 31. Returns and AUM are according to investors. The firm's spokesman declined to comment.
Meanwhile Plainfield Asset Management, run by Max Holmes, signed a lease soon after SVP in the late summer of 2007 for a higher premium of $122 per square foot, securing the whole 3rd floor and a smaller section on the 4th. The seven-year lease for 60,654 sq ft will cost Plainfield just over $616,000 a month. That's a pretty high price to pay considering Holmes gated his investors last fall, [add link: https://dealbreaker.com/2008/11/plainfield-freezes-redemptions.php], while he was spending big bucks to build out his tony office space. Sources inside the firm say they've held on to $4.5 billion of assets and returned negative 9 percent in 2008. The fund began paying rent in February and only moved in last week. Plainfield does not have any subletting tenants to defray the costs, nor does SVP.
When asked about the hefty rents paid by SVP and Plainfield, Jim Fagan, a Senior Managing Director for Cushman Wakefield, said, "Well that pretty much means Antares set a record." Fagan adds, "Commercial landlords are lucky if they can secure even $80 a square foot today on downtown Greenwich prime properties." Fagan also points out that at the beginning of 2008 there was zero commercial vacancy in downtown. Now it's around 15 percent.
Antares would have beaten its own square foot record if Duff Capital, run by Phil Duff, hadn't spiraled into oblivion this year. In April of 2008, Duff signed on for an even more egregious $140 per square foot for the first five years of a 15-year lease. According to lease documents, Duff said he had only $100m of assets but took the coveted water views on the penthouse 4th floor and the smaller circle space off the building's entrance for a total of 43,403 square feet. That comes out to a cool $500,000+ a month, more than a standard 2 percent management fee could cover.
After Duff began massive layoffs in January and couldn't off load the lease, he opted to settle with Antares instead of filing bankruptcy and bailing on his financial commitment. According to documents seen by Dealbreaker, Antares cut 2.5 years off the lease, but received the other 2.5 years in a lump sum at the same $140 per square foot rate. That's over $15 million Antares took to the bank off Duff's investors money.
Given the building was gutted and built out to specs designed by each landmark tenant, Antares still gave each of them a $40 per square foot allowance to make the inside look pretty. But the firms spent more money running their own construction. Duff took his interior redo to the extreme, spending an extra $210 a sq ft to fluff up the space for a total of $10.85m ($9.11m of that was paid for by Duff). This included adding space age photovoltaic powered system to the massive sky light on the 4th floor - there is now a remote controlled tenting system so they don't toast the traders but still flood them with Godly natural light. Antares says the other floors are equally built out with top-line fixtures including bathrooms with showers and their own cafeteria - costing the other hedgies close to what Duff spent. So far the only other luxury amenities the funds said they didn't really need (for now) are the valet parking and on-site nurse. But, if they change their mind, Antares will get it for them.
Considering Duff has covered the first few years of what's left on the buildings only vacant space, Antares can sit back and wait for another hedgie to own up to his ego and shell out the $115 per square foot they are now offering on the vacant 4th floor office. A Greenwich realtor said, "It's such a beautiful space no one wants to break it up. Now they just have to find a firm that drools over Duff's interior design, which might take them a while."
At the end of day it's a waiting game Antares can afford to play. According to the property's loan documents and confirmed by Jim Cabrera, the five-year, $160 million interest-only loan Antares took from Credit Suisse to acquire the property costs Antares about $4 million a year. Cabrera says he's earning 2.5 times his debt payments and is fully current on the loan. Should the commercial market swings back in Greenwich by April 2012, when the lofty principal is due, Antares could very well simply flip the building for a substantial profit. It wouldn't be the first time Antares has pulled off such a move, as the firm did so in 2006 when it sold Pickwick Plaza to Kensico Properties for a record price of $235 million.
Let's hope for Antares' sake the reflation trade is for real.
100 West Putnam Brochure [PDF]

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