For Investors, A Less Insular Island as appeared in the NY Times

By Alison Gregor

The Long Island commercial real estate market was once surprisingly insular, dominated by local players. But new faces are now on the scene, as investors coming form outside the area are increasingly buying up Long island office buildings. Often, these new faces are institutional investors flush with capital.

The latest deal involves the sale of One and Two Jericho Plaza, two 300,000-square-foot office buildings in Jericho built in 1978 to 1981 and known as the “boat buildings” for their prow like silhouettes.

The SL Green Realty Corporation, a real estate investment trust that is a major owner of Manhattan skyscrapers, is in contract to buy the buildings, which are being sold by Chasanoff Properties, a family-run business. The price has not been disclosed.

“We are seeing regional and national players that had Long Island slightly off the radar screen now focusing in on Long Island, because of the strong demographics, the strong economy and the overall strength of the office market,” said Bruce C. Nelson, a vice president in investment properties at the commercial brokerage firm CB Richard Ellis.

In one of the largest deals, CRIC Capital of Boston, a joint venture of CRIC and Prudential Real Estate Investors, purchased the world headquarters of CA Inc. at 1 CA Plaza, a 778,000-square-foot office building in Islandia, for $204 million.

In another major sale last year, American Realty Advisors of Glendale, Calif., an adviser to pension funds and other groups, acquired 201 Old Country Road, a 217,000-square-foot office building in Melville, N.Y., for $48.2 million from Pitcairn-Parr L.L.C. And in 2004, Ivy Equities, a private equities investment firm based in Montvale, N.J., purchased a 400,000-square-foot portfolio of Long Island buildings owned by Heatherwood Communities for $42 million, Mr. Nelson said.

Some investors entering suburban areas may be trying to position themselves to take advantage of the growing interest on the part of major companies in setting up corporate headquarters in nonurban locations, said Ethan S. Nessen, a principal of CRIC Capital.

“I would say that of the deals we look at where you’ve got a major corporation wanting to lease most of or all of a building or campus, about 80 percent are in suburban markets these days,’ he said.

Though traditionally it has had fewer corporate headquarters than some other suburbs like Westchester County, N.Y., the office market in Long Island is particularly stable compared with other suburban markets, as there is little room for new office development, Mr. Nesson said.

“Long Island has a finite amount of land, so over the long haul, if a tenant leaves, you’ve still got a very viable commodity,” he said.

For one relatively new investor from outside of Long Island, proximity to New York City is one attraction. In 2005, AEW Capital Management L.P., a Boston-based adviser to institutional and private investors bought 3 Huntington Quadrangle, a 400,000-square-foot office building in Melville, for $83 million from Broadway Real Estate Partners.

“The advantage that Long Island has is that people are very interested in New York, but New York’s gotten very expensive, so this is a way to participate in some of what’s going on in the greater New York region at a lower price,” said Michael Acton, a director of research for AEW Capital Management.

Long Island may have first caught the attention of investors from outside the area in the mid-1990’s, when a large local family-owned company, the Reckson Group, went public, becoming the Reckson Associates Realty Corporation, said David Pennetta, an executive vice president with Oxford & Simpson Realty Inc.

Once Reckson went public, it had to disclose more details about its financial conditions. “Reckson put a magnifying glass on Long Island and made it easy for other companies that purchased nationally to get good information about what’s happening here,” Mr. Pennetta said.

Now, some local families that own building portfolios are choosing to take advantage of hefty offers from outside investors. Two years ago, the Tilles family sold a portfolio of buildings worth $300 million to a joint venture of the CLK Management Corporation, a property management company based on Long Island, and GHP Office Realty, based in White Plains, which specializes in acquiring leasing and managing commercial properties in suburban markets around New York City.

“Some of the biggest privately owned portfolios, and even a public portfolio, have turned over,” said Mitchell Rechler, a former executive at Reckson Associates and now managing partner of Rechler Equity Partners, one of the largest owners of industrial space on Long Island. “I think investors are starting to understand the dynamics of Long Island better.”

That may be making it harder for some local investment firms to compete. C. Glenn Schor, a co-founder and chief operating officer of the Treeline Companies, an owner and investor in Long Island commercial real estate, said his firm typically purchases buildings only in off-market deals, in which it learns of a property that is for sale before its availability been widely listed.

Recently, Treeline took on a Manhattan-based investment partner, First Point Partners, to purchase Franklin Avenue Plaza, a 520,000-square-foot, four-building complex in Garden City, for $98.7 million.

“We don’t buy the transactions that are published in the national books, because the price competition on those is so severe,” Mr. Schor said.

Mr. Pennetta said that the influx of capital from outsiders was bringing about improvements in Long Island’s office building stock but that it would also drive up lease rates.

“When you’re paying these very high prices for portfolios, you’re in a different cost basis than the local guy you bought it from, so you have to get higher rents,” he said.