Lightstone Group gears up for 2011

The Lightstone Group is gearing up for an active 2011 as it eyes recapitalisation opportunities across the US, insisting the next 12 months will be “an interesting time to invest”.

With more than $350 million of equity from its non-traded REITs and private funds, as well as “a big war chest” from the sale of its 22-property outlet mall group Prime Outlets to Simon Property Group in September 2010, the firm said it has the firepower to take advantage of the current dislocation facing US real estate markets.

The New York-based firm is perhaps most renowned for its 2007, $8 billion acquisition of the hotel chain Extended Stay, which filed for bankruptcy protection in June 2009 and was purchased out of Chapter 11 by The Blackstone Group, Centerbridge Partners and Paulson and Co., this May.

However, Arvind Bajaj –  who heads up Lightstone’s investing business – insisted that the firm, founded by David Lichtenstein in 1988, had learned the lessons from that particular deal and was “moving forward and getting on with business”.

“It was a major issue and we don’t understate that, but it’s generally behind us and every day the deal becomes less of an issue,” Arvind said in an interview with PERE.

Lightstone hired Bajaj in July following three years as managing principal at Park Hill Real Estate to refocus the firm and kick start its acquisition activity. He said Lightstone was currently staffing up its acquisition group as it eyed a more active 2011, last month hiring real estate private equity former executives Kasra Sanandaji and Ryan Colbert as senior members of the investment team.

“We are looking at a lot of opportunities, but we are deliberately trying to be cautious and take our time,” Bajaj explained, adding that among the deals currently being closed was the $10 million acquisition of a senior note secured by a retail property in Atlanta, where the borrower was unable to refinance the mortgage. In taking over the note, Lightstone has kept the borrower in the deal as operating partner by offering a share of the promote, he said.

“We are trying to targeting infill locations as much as possible, where the borrowers and banks face an over-leveraged situation and need recapitalisation equity. That is our primary focus at the moment,” Bajaj continued. “And we think this situation will result in an opportunity for real estate firms to invest capital over the next three to five years.”

This summer, Lightstone also acquired a senior loan secured against a hotel near the Meadowlands entertainment complex, in New Jersey, for $7 million – a 70 percent discount to its 2007 face value. “It’s about distressed capital situations, not distressed real estate assets,” Bajaj said.

Lightstone expects to concentrate on the multifamily and retail sectors, with some hospitality, particularly in New York, Washington DC, Miami, Central Florida and Phoenix, Arizona. “We have the infrastructure already in place to be more active, and we are hiring again to further strengthen the team. But we know it takes a lot of maturity to be patient, and this is a market that demands just that.”