SPECIAL FEATURE: In bloom
New players are always cropping up in private equity real estate, but not all grow to be successful. PERE highlights several firms that are thriving with the right combination of strategy and personnel. PERE Magazine, December 2013/January 2014 issue
Thriving in today’s fundraising climate has proven difficult for many private equity real estate firms, and no one has been more aware of this difficulty than new fund managers. When launching new funds and hoping for a long-term career, it is tough for emerging managers to survive, let alone to prosper. Still, the emerging managers included in this year’s list of ‘firms to watch’ stand a good chance of blossoming into something
One source of hope this year amid a relatively harsh capital-raising climate has been the emerging manager programs run by several large US pension plans. The growing popularity of these programs has shown that, despite the obstacles facing newcomers, institutional investors have enough confidence in certain early players to give them a shot at success. These investors say they see the value of fostering and investing in
individuals and teams with proven track records who are forging their own path.
For example, in January, the Teacher Retirement System of Texas made commitments to three funds as part of its real estate emerging manager program. The firms chosen for those investments included Dallas based TriGate Capital, which we highlighted this year as a firm to watch, as well as New York-based Savanna Real Estate Partners, which made our list in 2011.
Meanwhile, the Los Angeles County Employees Retirement Association (LACERA) showed its increased faith in up-and-coming firms when it changed the limit of the capital that may be managed by any single emerging manager in its program from a fixed dollar amount to a percent of its real estate allocation. News in June that LACERA expects to allocate an additional $1.2 billion to real estate for fiscal year 2013-2014
introduced the opportunity for more emerging manager investments.
Also over the summer, the California Public Employees’ Retirement System made the first investments for its new $200 million real estate emerging manager program. Through the Canyon Catalyst Fund, a joint venture with Canyon Capital Realty Advisors, the $266 billion pension system allocated capital to four early stage managers.
Within these programs and throughout the industry, there are varied definitions of what makes an emerging manager. For the purposes of this feature, PERE has defined an emerging manager as a relatively new player to the private equity real estate space, but not necessarily the greater real estate industry. The firm’s founders or key managers typically have established a track record at larger firms and now are looking to succeed on their own, or they can be firms that have been around for quite a while but only recently have sought institutional capital. In terms of capital, the firms included generally have less than $2 billion in total assets under management and are targeting a fundraising of around $500 million or less from a first, second or third institutional real estate fund.
The following pages profile 10 private equity real estate firms around the globe that are on the verge of or just beginning to experience success with their strategy among fund investors. With continued success and a little bit of luck, some of these firms may even grow into enduring players…
Managing members: Jay Henry, Jon Pettee and Jeff Yarckin
Strategy: Opportunistic investments in distressed debt and existing properties in the southeastern US
TriGate Capital broke into the investment management arena in 2008 with a fund of one, partnering with one of the country’s largest pension plans, the California State Teachers’ Retirement System (CalSTRS). The fund closed on $120 million in equity ($110 million from CalSTRS and $10 million from TriGate) and put the capital to work through a joint venture structure called TriGate Property Partners, investing in distressed real estate opportunities.
TriGate launched its initial commingled effort in November 2011, holding its first close in July 2012. One year later, the Dallas-based firm closed TriGate Property Partners II on $326 million in equity, surpassing its $300 million equity target with commitments from big-name pension plans including CalSTRS, the San Francisco Employees’ Retirement System, the Teacher Retirement System of Texas and the Ohio Police
and Fire Pension System.
TriGate’s success comes in part from the pedigree of its managing members: Jay Henry, Jon Pettee and Jeff Yarckin. Founder and managing partner Henry spent three years running Morgan Stanley’s investment group in Europe and currently serves as chief executive of JAH & Company, a family-controlled developer and operator of neighborhood retail properties. Meanwhile, Pettee spent seven years directing all operations, asset management and workout activities for NCS, a joint venture controlled by Fortress Investment Group and Goldman Sachs. Yarckin, the former president and chief executive of ORIX Capital Markets, spent 10 years with Lone Star Funds as a founding partner.
Through Fund II, TriGate is pursuing investments in distressed debt and existing properties, with the goal of value creation through the recapitalization and repositioning of assets. The firm focuses its activities in Florida, Georgia, Texas, Arizona, Colorado and California and has made past investments in suburban Boston and Chicago. Through Fund II, the firm is looking to make investments between $5 million and $20
million and has invested $63 million of the fund’s capital thus far.