Rock Creek Targets Bargains

WASHINGTON, DC - Two prominent real estate investors have formed a new venture with big plans. Doug Fleit and Brian Katz, founders of America's Capital Partners Mid-Atlantic, rolled out Rock Creek Realty Capital in February and aim to acquire $500 million to $1 billion in real estate properties and loans within the next two years — half of that in the Washington area.

The Herndon-based company is focusing on commercial office buildings, multifamily residential properties and hotels, as well as the loans that underlie them.

Fleit and Katz will be investing their own money alongside that of their equity partners, primarily through all-cash deals. Rock Creek will handle the leasing, asset management, property management and accounting reports for the investments.

The company's plan is twofold. The first strategy, much of which will be run out of a New York office, is to target distressed assets or distressed owners. "In places like New York, we see property values off 40 to 50 percent," said Katz, president of Rock Creek. In those markets, the company will primarily negotiate with lenders to buy the underlying loans for assets that are in trouble.

The second strategy involves different capital partners and does not target distressed assets but rather core, trophy and Class A buildings in D.C.'s Central Business District. "On both the distressed side in New York and on the core side in D.C., we think you've got a window during the next one to three years to buy these assets," Katz said. "That's in part because I don't think we're going to have a fast recovery from this recession. We're going to be bouncing along the bottom for a while."

Rock Creek already is in discussions with sellers on transactions in this market and in New York, though Katz couldn't say if any of those deals would close this year.

Chip Ryan, managing director of investment services at Northmarq Capital LLC, thinks Rock Creek's plan sounds plausible. "Washington could certainly absorb a player like that," Ryan said, though he thinks deal flow won't pick up until 2010.

"It's a good time to be setting up [this kind of venture], though it's maybe a little early," he said. "But it's better to be early to the dance in this situation than to be late."

America's Capital Partners Mid-Atlantic, has 22 properties totaling 4.5 million square feet and is still operating normally, though it hasn't acquired any assets in nearly two years. All of Katz and Fleit's future investments will flow through Rock Creek.

"We've been on the sidelines in large part because we knew the market would be overpriced," Katz said. "Nobody had any idea the credit crisis would be this deep or this profound. We believe we'll be one of the first to come back into the market."

He added, "It's like Warren Buffet says: Be fearful when others are greedy and be greedy when others are fearful. We want to be greedy right now."

Rock Creek has different principals than America's Capital, though the two businesses share office space in Herndon. The combined staff has increased by a third over the past six months to 65 and could jump to 100 employees as assets are purchased, Katz said. Rock Creek also plans to open a Boston office in 12 to 18 months.