Waiting game pays off for visionary Osterman: Tom Osterman, senior partner, Sterling Equities.

Once an active developer and landlord in Manhattan responsible for such landmark buildings as the crown-roofed architectural gem 450 Lexington Avenue and the sublimely curvaceous Lipstick Building, Sterling Equities has focused instead on a series of commercial property funds since the early 1990s.

Its latest, Sterling American Property V, recently finished raising $600 million from both institutional and private investors, capital that Sterling says will be leveraged to purchase as much as $3 billion worth of real estate assets.

Not only is it the firm's largest fund to date, it is perhaps also its most ambitious given the record level of competing money currently seeking a home in real estate investment. Indeed, institutional investors continue to expand their allocations into the sector, private real estate acquirers continue to wield high levels of leverage to much success and overseas real estate buyers continue to benefit from a sinking dollar and global glut of capital.

All the activity has created tremendous liquidity in the sector, but it has also driven down cap rates, total returns, and has made it increasingly difficult for funds to merely emerge from commercial real estate auctions with an asset in hand--forget about successfully moving on to yield a profit from its operation.

That's why Sterling America, a partnership between Sterling Equities and fellow real estate investment firm, American Securities, has become adept at buying distressed assets, properties in varying states of underperformance whose cash flow can be improved via better management or by repositioning the building.

With so much capital to invest--the result of its past successes and consequent popularity among investors--Sterling's investment guidelines are broad for SAP V and deals will unfold at the pace that the firm's senior partners, Michael Katz, Richard Wilpon and Thomas Osterman, can uncover opportunities through their network of connections nationally.

"One of the differences that really defines our investment funds from others is that we're not afraid to get our hands dirty and get into assets that need work to perform," Osterman said. "Even though the markets have gotten so full of investors and real estate asset pricing is full, that's how we are still able to create value and returns for our investors. By making class B buildings out of class C buildings and class A buildings out of B buildings. All our funds have this kind of value-add strategy that has been so successful."

Osterman, who has been with Sterling since 1975, plays an essential role because it is often through him that the fund has been able to invest in profitable deals nationwide.

"I work with local joint venture partners and have developed so many contacts that both I and the other partners are able to find interesting deals around the country," Osterman.

Sterling America invests alongside its investors and receives a modest management fee only if the funds are sufficiently profitable. According to Osterman, although their returns fluctuate, all four of the firm's previous funds were successful.

So far, the fund has purchased two office buildings in New Jersey for $43 million, a 668,000 s/f building in Philadelphia for $75 million, and a 677,000 s/f building in Chicago for $114 million.

More acquisitions are on the way, but Osterman said that the fund is careful not to become overeager to allocate money.

"Patience is a real virtue in this game," Osterman said. "We never put money out just to put it out."

In fact, the fund isn't even in possession of the money until it is ready to buy an asset, at which time it calls for the capital from its investors.

"It's not like we're there with all the money burning a hole in our pocket," Osterman said.