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Deals & Dealmakers

Senior loan that put Margules on road to success

During his interview with Real Estate Weekly, Eric Margules, president and CEO of Margules Properties Inc., made it clear that all who invest with him make money.

While the count of those who have entrusted their funds with one of the Margules Properties syndications has climbed north of 300, it was the first investor that likely walked away the happiest.

ERIC MARGULES
ERIC MARGULES

Margules graduated from the UPenn’s Wharton School with an MBA in Real Estate and Finance. Seemingly on track to enjoy a bright future in the world of investment banking, the economic turbulence of the late 80s and early 90s resulted in layoffs that ended what may have been a storied career at Merrill Lynch before it could ever really gain traction.

“Being unemployed — as everybody knows — is humiliating and frustrating,” Margules said.

“I tell people that, for 10 years, I was either unemployed or under employed.”
Knowing that he needed to make a change, Margules turned his attention to real estate when his steady paycheck evaporated.

A savvy business professional, the South Orange native was confident that he could turn a profit if given the proper kick-start. Unfortunately, he’s the first to admit that although he was about to start his own company in 1992, he was completely broke.

That’s when his father stepped in. A man headed towards retirement and armed with only modest savings, Margules’ father believed in his son. So when the younger of the two set his sights on purchasing a walk-up apartment building with stores on the ground level on 26th and 8th in Manhattan, the senior Margules invested $30,000 to help cover the down payment.

In the world of New York real estate, a few tens-of-thousands of dollars can be a barely noticeable rounding error. But to Margules’ father, it was almost all he had to his name.
Despite the considerable risk, the senior Margules admired his son’s drive and determination. Eric was not above working at restaurants to make ends meet after seeing his white collar career hit a serious speed bump. He did that when he wasn’t busy learning commercial real estate while working an entry level job under a broker at Kidder Peabody.

Ultimately, Margule’s father opted to take the leap, casting aside the conservative nature that had been instilled in him during the Great Depression.
His contribution led to big things for his son, who would eventually bring in several more investors and raise $475,000.

“I was not at the end of the tunnel, but I saw the light at the end of it probably in 1996,” Margules said. “The rubber started hitting the road in 1997 and it really turned things around for me.”

“My (then) wife worked and we basically lived off her income. There was a nanny in the next room with a crying baby,” continued Margules while describing the early years of being a business owner. “I had to pretend the baby wasn’t crying by holding my hand over the phone.”

As the business began to grow, Margules was soon able to acquire his own office and now he has a Park Avenue location in Manhattan. The company’s portfolio includes more than 70 buildings stretched across Manhattan, Queens, Brooklyn, Long Island, Miami Beach and another location that has proven to be a major money-maker over the past five years.
In 2010, the sixth borough caught Margules’ attention.

“In Jersey City you really can make some sense out of it. You don’t have to work the building for ten years in order to break even,” said Margules who now owns and manages more than one million s/f of development rights in the Journal Square section of Jersey City.
“To us, it’s like New York City in the 90’s, it really is. When I was buying in New York in the 90s, I feel like I was really the only person in Manhattan that knew it was a good time to buy. It was hard to get financing (from banks), it was tough to get investments.”

Margules dug into the other side of the Hudson with a “really special building” that was situated under two blocks from the PATH hub at Journal Square. The property had 30 residential units and eight stores at its base.

“The seller had owned the building for 30 years and his idea of a renovation was if the floor was scratched up, he would roll linoleum over it.

“There are still a lot of long-time owners who have not paid a lot of attention (to their properties),” Margules said while discussing the ability to snatch up value buys in Jersey City.

“We work with tenants when we get the rents up and it’s hard to do that any place else.
“I’ve been buying one or two buildings a month in Jersey City,” continued Margules, who said the values will only continue to rise alongside of Manhattan’s.

The Jersey-located additions to the portfolio came in handy when the entire region’s real estate market experienced a sharp decline about six years ago.

“The real time that we were affected was probably 2008 through 2010,” said Margules who credited his area of the market with being more resistant to industry hiccups and keeping damage to a minimum.

“Fortunately, because we have mostly walkups, they’re really the lowest price point for rental properties. So when you have $1,400 one bedroom apartments, what do they go down? $100?

“Rents didn’t go down that much, but expenses went up,” said Margules “Sometimes, we had to offer a free month.” But the concessions were hardly mortal blows to his growing enterprise.

Now having successfully ridden out that wave, Margules is not content to rest on what he’s already accomplished.

The days where he needed to turn to his father for funding have long since passed and he plans to build on the success and momentum that he’s been able to generate following the paternal jump start that put him in action.
Earlier this month, Margules Properties Inc. purchased five mixed-use buildings in Jersey City and announced plans to upgrade the buildings.

Two of the buildings form a triangle bound by Montgomery Avenue, Orchard Street and Jordan Avenue, in the McGinley Square section of Jersey City. They include a gut-renovated, five-story walk-up building at 52 Orchard Street, with 12 apartments and three stores and 685 Montgomery Avenue, a three-story mixed-use building with three stores and five apartments.

The other buildings include: 70 Tonnele Avenue, a 17-unit apartment building; 142 Monticello Ave., a corner three-story townhouse building with 2,500 s/f of retail space on the first floor and two, two-bedroom units on the two upper floors and 2175 JFK Boulevard, a one-story vacant commercial building.

As he continues to push forward and acquire more properties, Margules has a piece of advice for young real estate professionals who are attempting to create their own legacy in the business.

“Real estate is along term investment,” Margules said. “It’s true with almost any business that you start. It’s going to take you ten years to where you are making a living.

“When I was unemployed or underemployed, I had all these friends from business school who were making hefty incomes and doing so well. I didn’t have any of that, but now I feel like I’m in a much better position than they are. They’re still working for a boss, they don’t necessarily like their jobs. I am my own boss. I make my own hours.”

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