Daily Business Review
September 26, 2011
Arnaud Karsenti and Robert Suris met in 2003, through deals where they bought and sold Little Havana real estate to each other. They continued to do deals through the boom years.
At the time, they never imagined they would join forces to create 13th Floor Investments and become among South Florida’s most active buyers during one of the worst housing markets.
Since the country slid into a recession in 2007, Karsenti, 33, and Suris, 50, have acquired discounted land for single-family homes and townhouses in Homestead — at a time when nobody wanted to touch land. They quickly sold the land to national builders for a profit.
They also bought bank-owned residential communities and sold the houses at discounts. They bought empty condo towers, converted them to rentals and resold to apartment operators.
The pair recently partnered with developer Key International to buy the foreclosed NoBe Bay, an unfinished 998-unit condo project in Miami Beach.
The key to their success has been finding sellers willing to unload the properties at values nearly 40 percent to 70 percent below replacement cost, Karsenti said.
“That discount is a margin of safety,” he said. “When you buy low, you kind of worry whether the market can get further distressed.”
To determine the value of a property, the partners first determine how much they could resell the property for based on the neighborhood.
“We look to buy at a great discount from that,” he said.
Banker Martha Tabio said the pair has business model in a distressed market that inspires her confidence.
“They found a niche buying distressed properties, and when you buy at a very low price, everything works,” said Tabio, senior vice president of the construction loan division of Banesco USA Bank, formerly BBU Bank.
She often finances 13th Floor’s acquisitions at a 70 percent loan-to-value ratio or makes loans backed by properties the pair bought in cash deals.
As the housing market began to collapse in 2006, Karsenti, a mechanical engineer, had just graduated with a Harvard MBA. Suris, a general contractor for much of his working life, was finishing up some mid-rise condo projects in Little Havana.
In 2007, they launched 13th Floor Investments as a development company. But as the market rapidly deteriorated, they shifted their focus toward value-added real estate investments in early 2008.
Their backgrounds meshed well. Karsenti’s skills center on valuating, structuring and capitalizing a deal.
“He is very ingenious and has a great personality,” Suris said about Karsenti’s relationship with financial institutions and private investors. “He makes our sources of capital feel mathematically comfortable with the pro-forma. He is good at chasing deals and putting them together.”
Miami real estate investor Adam Lubkin, who often competes for distressed properties with 13th Floor, said Karsenti seems to be ahead of the game when it comes to dealmaking.
“He has a certain comfort level that while other people are trying to put their arms around it, he is already two steps ahead of everybody else,” said Lubkin, president and CEO of Ibis Development Group.
Karsenti said his partner brings decades of experience in construction and a feel for what would sell even in a challenging housing market.
“He has been around this market for such a long time that he has a vision and a gut-feel for certain assets that is very difficult to duplicate,” Karsenti said
Karsenti said Suris had the vision to buy land in Homestead when land values were dropping drastically. “People thought we were crazy.”
Suris is also good at quantifying liabilities — including unpaid taxes, liens and environmental concerns like the presence of Chinese drywall — when buying distressed real estate, Karsenti said.
“I use Robert’s strength to do my work,” said Karsenti noting that he needs that information to value a deal properly.
Lubkin said 13th Floor’s strategy of going after mid-size deals has served it well because there isn’t a lot of competition at that level.
“Their deals are too small for the big institutions and too big for the smaller mom-and-pop type of shop,” he said.
Another advantage that 13th Floor has over many of its competitors is a “track record” in closing deals.
“Once you close a few deals and you have a certain track record, you are going to get a little bit more of an advantage than the rest of the market,” Lubkin said. He added that some sellers would rather go with someone capable of closing deals than with someone offering more money but with a poor track record of closing transactions.
The duo expect to be busy. They expect to deliver the NoBe condos to the market in summer 2012.
They also plan to build infrastructure for a partially completed housing development in Naples that they acquired in June. When finished, Sierra Grande would consist of 300 apartments.
The partners are also drafting a plan for a parcel they acquired in May that was formerly part of Tamarac’s Sabal Palm Golf Course. The property is approved for 174 single family lots.
They are also preparing to build infrastructure on a 54-acre Homestead tract zoned for 323 single-family homes. A national builder has the property already under contract, they said.
They are expect to close on a multifamily land deal in Naples soon.
“We’ve got our hands full at this moment,” Karsenti said.
Amid the real estate downturn, Arnaud Karsenti and Robert Suris, who head 13th Floor Investments, have been busy buying and selling land, condominium projects and housing projects.