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AMERICAS NEWS: Irreconcilable differences

Gary Stevens is suing his former employer, Landmark Partners, for breach of contract amid allegations the firm failed to keep a promise over compensation. PERE magazine December 2008/January 2009 issue

Losing a key member of your team is never easy – especially if it's not an amicable parting of ways.

For Landmark Partners, the dismissal of real estate head Gary Stevens – and the subsequent lawsuit that it has brought – can be judged as even tougher coming just as the secondaries firm prepares to launch its latest real estate fund.

People familiar with the matter told PERE that the Simsbury, Connecticut-based firm, which also raises private equity secondary funds, was targeting $750 million for its next real estate venture, expected to be called Landmark Real Estate Fund VI.

Losing a key man is absolutely traumatic,” the industry veteran, who declined to be named, added. “It impacts on your LPs and the management team that have been working with that individual.

However following the departure of Stevens after four years with the firm, some industry professionals have questioned whether this has made Landmark's task even harder, particularly given the current fundraising environment.

Stevens' termination on 6 November came as a surprise to most in the industry. The former managing director of The Carlyle Group and JER Companies chief operating officer has since filed a lawsuit against Landmark claiming breach of contract.

According to court documents obtained by PERE, the dispute allegedly involves Landmark's offer to provide Stevens with an ownership interest in the whole of Landmark in order to join the firm. The offer was initially set at 10 percent and would start from the time of his employment in May 2004. The economic participation plan, as it was referred to, would be drawn up at a later date following Stevens' appointment.

When the “economic participation plan” was drawn up in September this year, according to the lawsuit, it did not provide Stevens with “any interest in the growth in the equity of the entire firm”, any “initial participation rights in the amount of 10 percent”, nor “remuneration of compensation for the increase in the value of the firm” between 2004 and 2008.

When neither side could agree, Landmark terminated Stevens' contract. Stevens is now suing Landmark for damages equal to a 10 percent equity interest in the firm over the past four years. Both Stevens and Landmark declined to comment.

Landmark was one of the first real estate secondaries players, forming its first real estate fund in 1996 to acquire a portfolio of commingled fund interests from a state pension plan. It was led at the time by Richard Maine, who went on to invest more than $1 billion in 42 secondary real estate transactions.

Maine left the firm, along with another real estate executive at Landmark, Robert Harvey, to help form secondaries and fund of funds firm, Madison Harbor Capital. The duo's departure forced Landmark to enact a key-man clause and, according to market sources, resulted in Landmark, which was half way through investing its fourth real estate fund at the time, cutting off all further investments from the vehicle.

Stevens' appointment was a means of Landmark re-establishing its real estate team, and under his stewardship the firm went on to raise more than $360 million for Landmark Real Estate Fund V in 2005, primarily from new investors, according to one executive.

“Losing a key man is absolutely traumatic,” the industry veteran, who declined to be named, added. “It impacts on your LPs and the management team that have been working with that individual.”