These days, capital is prone to sitting on the couch in sweatpants and feeling sorry for itself. Brian Salazar and Mike Manzo, the co-founders of Andover-based Entegra Development and Investment, believe they’ve found a way to get capital back to work.
The pair recently announced the launch of a green real estate investment fund. The fund, which will invest in physically or financially distressed properties and reposition those properties through value-added green redevelopment, will serve as the first investment arm of Salazar and Manzo’s year-old green building consulting business.
“It’s a great time to be in the market, from a buyer’s perspective,” Salazar insisted. Rising vacancies and unemployment, flagging consumer spending, the specter of commercial foreclosures and widespread difficulties refinancing maturing debt should all conspire to drive commercial asset values down. That will create openings for nimble, opportunistic capital. And, in the long term, the market for the type of green “value-added repositioning” the pair trades in is strong, and growing. For Manzo and Salazar, it’s the perfect convergence of market trends.
“It’s a great time to get the fund off the ground,” Manzo said. “If you wait until the market bounces back, you’re chasing stuff. Get things under control now, when it’s ugly. Get permitted, and ready to go.”
In its first incarnation, the $10 million Entegra fund will be structured as a co-investment fund. Manzo and Salazar will bring deals to the table, take 5 percent equity stakes, partner with larger equity partners and manage the projects’ value-added greening. Entegra has already struck a partnership with RJ Valentine, the developer behind F1 Boston and New England’s Jiffy Lube franchises. The fund will target small- to mid-market distressed properties in greater Boston.
The green building industry has grown exponentially over the past five years. According to data from the U.S. Green Building Council, a total of 2151 commercial projects have been LEED certified, with another 16,393 in the pipeline. All told, the stock of current and planned commercial green space tops 4.2 billion square feet.
“The willingness of property owners to do LEED projects is definitely growing at a rapid pace,” Salazar said. “There were people waiting to see if it was a fad, but the numbers are coming in. People do value these builds beyond the feel-good aspect. That’s what’s really pushing this market forward.”
While new construction dominates the pipeline, the sector of existing building renovation is growing rapidly. In terms of number of projects and square footage, existing building green construction is up roughly 300 percent in the past year alone. And existing building registrations have grown from just 88 in 2004 more than 2,060 in 2008. The USGBC registers $464 million worth of construction every business day, and projects the value of building construction to grow to $60 billion by 2010.
“Going forward, being green will be all that matters,” Manzo said. “Especially when it comes to commercial real estate.” He and Salazar point to data showing that green buildings enjoy higher occupancy rates and lower operating costs. The USGBC has found that, when sold, green buildings command a 30 percent premium. It’s that fact – the probability of long-term growth – that Manzo and Salazar believe will attract well-capitalized partners in this down market.
“There’s multiple billions of cash on the sidelines. There’s no shortage of equity,” Manzo said. “It’s perfect timing. Now’s the time to start getting stuff under control, and start the repositioning process.”
