Boutique firms expand into equity placement

Boutique firms expand into equity placement

Boutique brokerage houses are rapidly jumping into the real estate equity-placement business.

Over the past year, private-placement units have been launched by four brokers–Greenwich Group, Holliday Fenoglio Fowler, Secured Capital and Sonnenblick-Goldman–as well as one major investment bank, Lazard Freres. They joined 16 other firms already in the business of raising equity for funds and other real estate ventures, according to a survey by Real Estate Alert (see list on Pages 8-9).

The firms are seeking to capitalize on rapid growth in the market–both in terms of the amount of capital earmarked for real estate investments, as well as the number of players seeking to manage investments. Placement agents can facilitate the process for both sides by helping managers navigate the institutional-capital world while helping investors understand the merits and short-comings of different strategies.

Commingled high-yield funds represent an important source of the sector’s growth. There were 159 active or planned opportunity funds as of the end of last year, up from 146 in 2002 and 114 the previous year, according to a separate survey by Real Estate Alert. The active funds were still $26 billion short of their aggregate $64 billion equity target. Many of those funds will ask placement agents to line up investors.

The use of placement agents is not limited to untested fund operators. Indeed, such top-performing veterans as Beacon Capital Partners, Blackstone Group and Praedium Group have hired agents for their latest vehicles. The reason: Agents can offer them access to capital sources they otherwise would not reach.

For example, Blackstone is about to complete raising $2.2 billion of equity for its fourth domestic fund. Thanks to its strong track record, Blackstone’s in-house staff was able to line up about two-thirds of the total on its own–in many cases, from investors in the firm’s earlier funds. But Blackstone hired Credit Suisse First Boston’s private funds group to help bring in new investors.

First Boston, the biggest placement agent for real estate funds, views funds’ in-house marketing operations as its biggest competitor. By using its own staff, a fund can avoid the fees charged by placement agents–which can run from 1% to 3% of the capital raised.

But First Boston’s 17-member team, headed by managing directors David Hodes, Doug Weill and Bill Thompson, argue that placement agents are worth it, even for giant players like Blackstone, because they can speed up the launch date for funds with strategies that are often time-sensitive.

“The biggest challenge to any private-equity fund-raise activity is time, because any new idea has a relatively limited shelflife,” said Hodes. “The senior people who run these organizations need to spend their time running their businesses, deploying capital and making money for their limited partners, as opposed to raising capital.” In addition, the agents have the expertise to advise operators on the strategy and structure of funds, as well as on the most-desirable structures for management fees.

The boutique brokerage firms, which have a working knowledge of many nooks and crannies of the real estate world, view private placement as an obvious next step for their platform expansions.

“Firms like us and firms like Holliday Fenoglio know the players, and we want to build our platform,” said Gary Barth, managing director at Greenwich Group. “It’s taking a brokerage platform and expanding it into a fund-raising business.” Douglas Hercher, managing director and principal of Sonnenblick-Goldman, said the evolution happened almost on its own. “We have a lot of relationships with the institutional investors that are struggling to put capital to work,” he said. “And we have terrific relationships with the operators. So it was more guys coming to us and asking, ‘Can you help me raise money.’ “

The formation of Holliday’s unit actually eliminated two players from the market. The unit is staffed largely by executives from Chadwick-Saylor and Fiduciary Capital, ending those firms’ participation in the placement market.

Equity Placement Agents for Real Estate Ventures

Firm Contact Sample Clients

Ackman-Ziff Stephen Weiss DLC Management

212-697-3333 Stellar Management

Atlantic-Pacific Jim Manley JER Cos.

Capital 203-862-9182 Legacy Partners

Bergstrom Capital Eric Bergstrom Koll Co.

Advisors 949-494-4666 Westwood Group

Urban Pacific Builders

Blue Vista Capital Robert G. Byron Contrarian Capital Management

Partners 312-578-0033, MCL Cos.

Ext. 7003 Mesirow Financial Services

Hostmark Hospitality

Phoenix Capital Partners

Pace Management

Chatsworth Ralph DiFiore Chelsea Properties

Securities 203-629-2612 United Residential Properties

CSFB Private Funds 212-325-2000 Blackacre Capital

Group Blackstone Group

Essex Property Trust

Five Mile Capital

LNR Property

Rockport Group

Soros Real Estate Investors

C.P. Eaton & Assoc. W. Charles Eaton ARCap

203-831-2970 O’Connor Group

GRE Securities Bruce Batkin Hanover Financial

212-754-0100 Leading Hotels of the World

Madison Capital

HFF Securities Thomas Mizo Paladin Realty Partners

310-407-2100 Somera Capital

UrbanAmerica

Koza Partners John Koza Parmenter Realty

415-391-4550 Sarofim Realty Advisors

Lashine Group Nancy Lashine JER Cos.

516-883-8410 Lehman Brothers

Talcott Realty

Lazard Freres Michael Sutka

212-632-1328

Macquarie Capital George Ahl Regency Centers

Partners 212-548-2548 Storage USA

Tishman Speyer

Merrill Lynch Alan Pardee Lowe Enterprises

212-449-0035 Och-Ziff Capital Management

Walton Street Capital

Monument Group Janice Lauer Beacon Capital Partners

617-423-4700 Patron Capital Partners

Morgan Stanley Bob Weaver Avalon Bay Communities

212-761-6927 HEI Hospitality

Hines

ProLogis

Presidio Partners Jack Berquist Capri Capital

415-321-1071 CB Richard Ellis Investors

ROJ Development

Quince Hill Thomas Foster Ramius Capital

Partners 202-265-4040 Rockwood Capital

Secured Capital Joshua Brown Cargill Value Investments

214-965-0202 Hyperion GMAC Real Estate

Pacific Coast Capital Partners

Weingart REIT

Sonnenblick-Goldman Douglas Hercher Artisan Realty Capital

212-841-9234

Triton Pacific Robert Davis Berwind Property Group

Capital 310-300-0833 Duke Realty

Hampshire Cos.

Parkway Properties

Waterton Associates

Firm The Skinny

Ackman-Ziff Focuses on portfolio acquisitions, recaps, joint

ventures and partnerships. Less emphasis on

commingled funds.

Atlantic-Pacific Boutique investment bank covers broader

Capital private-equity market. Real estate activity on

rise. Team of 25 handles one or two real estate

funds at a time.

Bergstrom Capital Five-person team represents funds, joint ventures

Advisors and development projects nationwide.

Blue Vista Capital Specializes in opportunistic real estate funds.

Partners Also raises equity for partnerships and one-off

projects.

Chatsworth Private-equity placement agent garners about 25%

Securities of its business from real estate funds. Team of

15 has been around for about 10 years.

CSFB Private Funds Biggest player in market. Its 17-member team

Group raised $3 billion last year for real estate

funds globally. Clients include some of sector’s

top performers.

C.P. Eaton & Assoc. Private-equity/hedge-fund specialist. Has stepped

up real estate presence. Typically takes on mix

of clients that avoids competition for same

investors.

GRE Securities Greenwich Group unit was one of several boutique

brokerages to branch into the sector in recent

years. Geared toward high-yield funds.

HFF Securities New Holliday Fenoglio Fowler unit. Staffers

include three former Chadwick-Saylor specialists.

Clients include fund operators.

Koza Partners New firm targets real estate funds. Headed by

private-placement veteran John Koza and ex-CB

Richard Ellis Investors exec Mary McCarthy.

Lashine Group Fund marketer. Also provides strategic

consulting, product development, merger and

disposition advice and other specialized

services.

Lazard Freres Team lured from Merrill Lynch last year. Broad

private-equity focus. Real estate funds expected

to account for up to 25% of business by yearend.

Macquarie Capital Raised $4.3 billion for joint ventures last year.

Partners Clients include many off-shore ventures.

Merrill Lynch Staff raided by Lazard Freres last year. New

team has built momentum quickly, broadened

private-equity focus to include more real estate

business.

Monument Group Independent boutique is active in private-equity

world. Represents some real estate funds. Very

plugged-in with the endowment world.

Morgan Stanley Team works exclusively on real estate. Raised

more than $5 billion globally over three years.

Along with CSFB, a top player at high end of the

market.

Presidio Partners Principals left Banc of America last year. Firm

gets outsourced business from BofA. Works almost

exclusively on opportunity and value-added funds.

Quince Hill Private-equity specialist. Moving heavily into

Partners real estate funds, of all strategies. Two-person

boutique shop handles one or two vehicles at a

time.

Secured Capital Specializes in partnerships, joint ventures and

complex structured-finance transactions. May

represent commingled funds down the road.

Sonnenblick-Goldman Has broad focus, with 30 staffers available for

assignments. Works with many joint ventures and

some commingled funds.

Triton Pacific Boutique investment bank specializes in

Capital commingled funds and joint ventures, as well as

some real estate-related stock offerings and M&A.

COPYRIGHT 2004 Harrison Scott Publications, Inc.

COPYRIGHT 2004 Gale Group