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Deals & Dealmakers

Sidhu set to take Megalith on sojourn into commercial market

Like the American cowboy of yester-year, the modern day entrepreneur has become something of a stock character.

Just like old Westerns allow us to picture those who worked the land and herded cattle as romanticized gunslingers or stoic John Wayne-types, we picture startup-founders as plucky youngsters opting to form a company in their garage instead of finishing college or joining the traditional workforce.

And while that image has a solid foundation in reality, there are those who don’t fit the typical startup mold.

“I’ve always been an entrepreneur, even though I worked desk jobs at very not entrepreneurial, very intuitional firms,” Sam Sidhu, founder and CEO of Megalith Capital Management, told Real Estate Weekly.

“I always had the bug in me, (but first) I built the resume and got the experience.”
Sidhu worked at both Goldman Sachs and Providence Equity before embarking on an “opportunistic endeavor” into the world of real estate.

Armed with an M.B.A in General Management from the Harvard Business School and a B.Sc. in Finance from the Wharton School at the University of Pennsylvania, Sidhu founded Megalith — a company which currently holds $1.2 billion in assets — while balancing responsibilities in his family’s business.

While he began his career in a traditional way, the entrepreneurial inklings first surfaced during Sidhu’s days as a student. Launching multiple startups, he dabbled in a range of markets, including e-commerce and clothing retail.

He was inspired by his father, who as president and CEO of Sovereign Bank, navigated the institution from $200 million in assets to $100 billion when it was sold to Santander.
His father then went on to start Customers Bank, a NYSE-listed institution of which Sidhu sits on the board. A $250 million asset bank in 2009, the Sidhu family and several former Sovereign employees have grown it into a nealry $8 billion business.

“While I was building Megalith, I was also helping Customer’s Bank build their portfolio in New York,” explained Sidhu.


He said the experience of helping to build a bank like those he often turns to in order to provide capital for Megalith’s projects helped to sharpen his understanding of both sides of a transaction.

That understanding has come in handy as Megalith focuses on strengthening its position in the commercial sector of New York real estate.

Though the firm’s portfolio includes a mix of residential, mixed use, and commercial holdings, the latter is an area in which Sidhu wishes to bulk up.

“Historically, while we have done mixed-use, most our assets have been centered around residential development, or multifamily. The commercial components have generally been within our residential buildings,” Sidhu said, mentioning that Megalith is currently in contract to purchase a commercial property in Chelsea.

Sidhu said that the building is part of a plan to make a “sizable” jump in commercial activity in 2016.

Part of that jump could be in Midtown Manhattan. While there are currently no plans in place, Sidhu feels that the area is still a prime market for office tenants.

“A lot of it can be refurbished, if that’s what tenants want right now, and as long as landlords take the approach that they will offer tenants what they need and what they desire, there is no reason why Midtown will ever be unseated as the best commercial market in the city,” Sidhu said, referring to how some feel the more traditional designs of the offices don’t match the open floor plans of new developments.

“It absolutely is and will continue to be one of the best commercial markets,” he added.
Sidhu also pointed to the rising Hudson Yards development as another boost for Midtown, even though it is located on the Hudson. It’s presence is working along with the growing Garment District and Times Square West to add sought-after office space to Manhattan’s core.

The company’s strategy is to focus on buildings that likely require a little TLC before they reach their highest investment potential. Megalith seeks out Class B buildings that have multi-tenanted floor spaces and below market rents. Single tenant floor plates aren’t out of the question, but are not the norm.

“What we look to do is to bring the building up to not only Class A investment standards, but also code standards.”

Wherever Megalith decides to invest in commercial property, they will also be looking to restock their residential holdings.
“In the summer of 2015, we fully exited our multifamily portfolio and that was sort of a 2010-12 vintage portfolio,” said Sidhu.

While it may not be the time to seek out residential space in Manhattan due to high prices and the desire to secure margins that are in the best interest of his investors, Sidhu is confident that the next wave of Megalith’s residential success will be in Brooklyn and Westchester.

“This is part of my investor roots,” said Sidhu, while talking about the decision to go for rental in the boroughs as opposed to condominiums or Manhattan-located homes.
He feels that Brooklyn rentals are an exceptionally strong long-term investment path.

“Generally, we don’t like to get caught up in short-term blips. Yes, we feel that margins are relatively thin, but our long-term view on Brooklyn is extremely strong.”
The firm is currently developing a rental building in Dumbo and is also about to close on two contracts in Westchester County where they intend to do ground up rental.

With 2016 already looking to be a busy year for Megalith, Sidhu reflected on the real estate industry and the demands it can present those who are successful in it.
He said that, regardless of where you are in a cycle or how cheaply a firm can purchase property, development is a tremendous commitment.

“Once it’s done it’s easy to look back and say, ‘That was a lot of fun,ʼ but it’s a heck of a lot of work.”


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