Rutter Seeking His Fortune in Value-Added Deals

Rutter Seeking His Fortune in Value-Added Deals

Commercial Property News

Essex Capital Partners Ltd. President Mitch Rutter is not afraid of value-added opportunities. In fact, he is on his way to building quite a real estate portfolio with them, having invested some $200 million in 1995 alone. Most of Essex Capital’s projects are purchased from banks that have taken control of the property from either the developer or the previous owner.

“What Essex really does is focus on real estate in which there is a way to achieve growth and add value,” said Rutter, 38. “It’s not necessary always for the return to be today. My view is it’s not the real estate that’s bad, just the assumptions on which it was purchased.”

In Rockville, MD, where two years ago Essex purchased an eight-acre site from Marine Midland Bank, Rutter is trying to rectify the assumption that an enclosed mall had a place in the middle of a city, essentially splitting the central business district in half. Essex assumed the $40 million of debt on the site, which is physically connected to the Rockville Metro stop, and Rutter expects to invest another $265 million by the time his grand plan is completed.

“The old project choked off the downtown. We are putting the gridiron of the city back through,” he said.

Rutter is demolishing the failed 300,000-square-foot mall, which was part of an unsuccessful urban renewal project of the 1960s, and everything else on the site except a 200,000-square-foot rented office building. Over time, he intends to replace the mall with 1.2 million square feet of office space, 200,000 square feet of retail and 150 residential units. “The project is zoned and approved, and the city and the country are cooperating in the provision of certain funds,” said Rutter, noting Essex is fee developer for infrastructure improvements for the surrounding area.

The first phase, set to commence in late spring or early summer 1996, is a retail pavilion with a 62,000-square-foot, below-grade 15-plex movie theater and 50,000 square feet of complementary retail above-grade. Rutter predicts a 12-to 15-year phase-in on the office space, consisting of three 450,000-to 500,000-square-foot buildings. For this space, he has in mind two key markets: trade associations and the General Services Administration, which, he believes, will need to place agencies in technologically updated and Americans with Disabilities Act-correct facilities.

In June, Essex acquired a 1.6-acre parcel adjacent to the Rockville project on which he envisions rental housing, the first of its kind in downtown Rockville.

On Long Island, Rutter is working on the lease-up of Stewart Plaza, a 220,000-square-foot retail center he purchased from Marine Midland Bank. Already, he has found takers for 30,000 of the 35,000 square feet that was vacant when he bought it. The center is anchored by a Caldors, and despite its financial woes, Rutter is confident, since the average Caldors has sales of $175 per square foot and Stewart Plaza does $250 per square foot.

This month, Rutter expects to close on another 100,000-square-foot shopping center on Long Island, with the right to build another 120,000 square feet.

Essex, with offices in New York and Rockville, was also recently part of a partnership that acquired 1500 Broadway, a 500,000-square-foot office building in the heart of Times Square. He will share in the asset management duties at the building, which was acquired for $55.25 million from Crossland Savings Bank.

Other acquisitions include two Manhattan apartment buildings and a number of mortgage notes on properties in New York and Maryland, although, Rutter admits, Essex is not one of the major players in the debt arena.

Rutter stresses his company is not a fund or a REIT and, therefore, is not under pressure to buy. “We are a private group that utilizes its own capital plus the capital of a group of investors (ranging) from wealthy individuals to institutional investors,” he explained. “We don’t need to chase transactions. We buy deal types that make sense, and we are able to be very flexible.” But, he added, hotels are out because he does not consider them real estate.

The New York-born and bred Rutter started in real estate as an attorney with the law firm of Simpson Thacher & Bartlett. He quit law in 1985 to find his fortune as a principal. “I always thought, as a real estate lawyer, no matter how proficient you got, you were always on the sidelines.” Rutter’s first nonlaw position was executive vice president with Solow Development Corp. in New York. He then headed a group at Julien J. Studley Inc. that bought transactions as a principal. In 1988, it was on to his own firm.

© Essex Capital, 2012