Deep Dive: EQT Exeter’s growing pains and growing gains

Photography by Matthew Bender

It is not every day that a private real estate executive is compared to an Eminem song lyric.

But that is how Roy March, chief executive of New York-based real estate investment bank Eastdil Secured, describes Ward Fitzgerald. “It’s when a tornado meets a volcano,” he says. “It’s that kind of energy.”

For the chief executive of EQT Exeter, the real estate arm of Swedish private equity firm EQT, it has been a whirlwind of a year and a half. In the 18 months since EQT acquired Fitzgerald’s company Exeter Property Group, EQT Exeter has doubled its gross assets under management from $16 billion to $30 billion across the industrial, multifamily, office and life sciences sectors.

Driving the platform’s expansion are multiple asset-level transactions and three high-profile M&A deals. The latter includes EQT Exeter’s January purchase of Bear Logi, a logistics investment manager focused on Japan and Korea; EQT’s agreement to buy Hong Kong-based private equity firm Baring Private Equity Asia, announced in March; and EQT Exeter’s acquisition of Redwood Capital Group, a Chicago-based multifamily specialist, in June.

“We had gotten to a point where most of the building blocks were in place,” Fitzgerald tells PERE. But “even though we had fulsome practices in logistics and office and life sciences and multifamily, they weren’t as robust as they needed to be. So I think these acquisitions were completing the ­pieces to the puzzle to now create a global leader in sheds, beds and meds.”

Ward’s career highlights

1985: Graduates from the University of Notre Dame with a BA in Business Administration
1989: Receives an MBA from Harvard Business School
1993: Joins Rouse and Associates
1994: Helps take Liberty Property Trust public
2006: Leaves Liberty Property Trust to form Exeter Property Group
2021: Becomes head of EQT Exeter after Exeter combines with EQT

Although EQT Exeter is best known as an industrial real estate manager, it intends to build up the other two legs of what Fitzgerald calls its ‘three-legged tripod.’ As of June 30, the firm was 90 percent allocated to industrial, 3 percent to multifamily, 2 percent to office and life sciences and 5 percent to other sectors, according to EQT’s half-year 2022 report. Over time, Fitzgerald sees that allocation shifting to 40 percent industrial, 40 percent multifamily and 20 percent office and life sciences.

On PERE’s ranking of the largest real estate managers by fundraising, the firm has ascended quickly over the past five years – from 46 in 2017 to 18 in 2022. But Fitzgerald has further growth ambitions for the Pennsylvania-­based firm.

“We certainly would have aspirations at some point in time, maybe in the next five years, to break the top five,” he says. “And if we don’t earn it, then we won’t get there. It won’t be because we come up with the slickest product and try to sell it in the marketplace. It will be because we do what we’re good at and it continues to get the best returns in the industry.”

Performance driven

That track record has powered EQT Exeter’s rise through the industry ranks. Across its seven realized funds, the manager’s returns were in the top 5 percent compared with more than 430 funds of the same vintages, according to Boston-based investment firm Cambridge Associates. The firm has generated a 2.4x realized gross multiple on invested capital and 23 percent net internal rate of return since inception, according to EQT’s website.

“They’ve grown on the basis of their performance,” says March, who has known Fitzgerald for more than 15 years and whose firm has worked with EQT Exeter on numerous large transactions, including the sales of its €3 billion European logistics portfolio and $6.8 billion US industrial portfolio to Singaporean sovereign wealth fund GIC late last year.

“Obviously, the industrial and logistics business has had a great run,” he remarks. “But you don’t continue to raise this kind of money unless you’ve been successful at it and you’ve realized those funds substantially.”

March calls Fitzgerald “relentless,” “tenacious” and “tireless” when it comes to building the business and establishing relationships with large institutional investors all over the world.

“He’s a bit of a Forrest Gump relative to showing up in places, whether it’s in Singapore, or in the Middle East or in Canada, with the sovereign wealth funds and pension funds,” he says. “He’s been able to generate those relationships, and it’s been driven respectfully not out of personality, but out of results.”

Fitzgerald attributes EQT Exeter’s outperformance to its vertically integrated business model as well as ‘local with locals’ approach. “The reason we have number one performance across the globe is because we are local in all of our investment decisions,” he explains. “I think you need to be local with locals to be very good at acquisitions and investments.” Under such an approach, the firm operates with more than 375 specialists across 45 offices in 20 countries.

To be successful with value-add execution, however, “it’s necessary to be vertically integrated.” That vertical integration includes construction management, development management, property management and landlord representation. Fitzgerald notes that landlord representation is a particularly important aspect of creating revenue for EQT Exeter.

While other landlords have access to so-called big data, “we’re the only ones who have little data, where we are able to know all of the rental rates and all of the leases, and all of the concessions that have been made in granular detail, because we negotiated every proposal that we sent out, and we showed every space,” he adds. “That’s the way we think about the concept of leasing space and adding value to our real ­estate.”

Managing change

David Gillan, head of real estate at the New York State Teachers’ Retirement System, recalls from his first meeting with Exeter in 2007 that “they were ready to grow right out of the gate.” Exeter was then focused on the US East Coast. But Rayenne Chen, its head of investor relations, saw from Gillan’s notepad that the system’s overall US industrial exposure included the West Coast. Chen was quick to ask whether NYSTRS was looking to expand its West Coast investments as well. Soon after, Exeter broadened the fund’s strategy to include the West Coast, and NYSTRS committed to the fund, having invested with the same team when they were at office and industrial real estate investment trust Liberty Property Trust (now part of Prologis).

When it comes to the firm’s present-day expansion, Gillan says the EQT merger “was a big move.” However, NYSTRS was comfortable with the transaction based on its long history with Exeter, the independent structure that was put in place to allow Fitzgerald to run the platform, as well as the pension plan’s knowledge of EQT from its private equity team.

Nonetheless, the deal did raise some concerns. “We always worry about the period right after the merger and whether both firms are going to gel,” says Gillan. “If a buyer is making a large investment in a real estate business, how much will they want to involve themselves in the day-to-day operations? This is nothing against EQT, but we’re always concerned with a buyer that may look to change what’s already been successful.”

Gillan also acknowledges the potential conflicts relating to a listed company’s ownership of a private real estate manager. “It’s a big issue and there is some validity to it, but everyone is constantly dealing with conflicts,” he says. “The key is to make sure your partner is forthcoming with its disclosure of conflicts and to monitor the organization closely.”

Although public companies manage themselves against quarterly results, he says some of NYSTRS’ other managers that have gone public or become part of public companies have not significantly changed how they do business. In the case of Blackstone, for example, “the way they’re managing the assets has not changed.” Similarly, in the 18 months since Exeter became a part of EQT, “they’re operating the same as they always have. Again, the key is to closely monitor each situation to ensure the general partner is focused on maximizing return and not managing to quarterly earnings.”

This includes when and how the firm decides to exit its investments. Some managers hold onto assets too long, which can leave a manager vulnerable to losses if there is an unexpected downturn in the market, instead of realizing a healthy gain by selling earlier. “There’s the old saying, “pigs get fed, hogs get slaughtered,’” he says. But with EQT Exeter, “they’re smart about taking their gains, they’re smart about selling. You want a general partner who is as good at selling as they are at acquiring assets.”

He also points out that while there are concerns relating to a public company’s ownership of a manager, there are also benefits: “They’re able to put more capital up. When we do investments, it’s nice to see a larger sponsor commitment.”

The Pennsylvania Public School Employees’ Retirement System, another longtime EQT Exeter investor, also noted in a February fund document that “the merger with EQT provides Exeter with permanent capital from a strategic partner to effectuate succession planning for retiring executives, business growth initiatives, and the benefits of an experienced, global firm with superior back office, ESG, information technology, and compliance functions.” PSERS said it “came to a favorable conclusion on the benefits to limited partners and consented to the transaction.”

Integration challenges

When it comes to the more recent M&A deals, the ease of integration will vary by organization. To date, EQT Exeter has raised or launched six US value-add industrial funds, four US core-plus industrial funds, four European value-add industrial funds, one Europe core industrial fund, one China logistics fund and two US value-add office funds, according to PERE data.

“All of our funds are sector focused and geographically focused,” he says. “We don’t believe you can be a jack of all trades; we believe you need to be the master of one. And all the professionals that work in our sector teams have spent their entire careers in that industry sector and continue to only spend their time at EQT Exeter in that industry sector.”

In the case of the Redwood acquisition, EQT Exeter is acquiring a team that is similarly sector focused. EQT Exeter has been active in the multifamily sector for about half a dozen years, with about half of its 22 US offices having exposure to the sector. However, “the Redwood transaction allows us to add offices and expertise and geographies where we did not have professionals in multifamily,” he remarks.

Facilitating the combination of the 35-strong Redwood team with EQT Exeter’s own multifamily team of nearly 20 investment professionals is the fact that both Redwood co-founder David Carlson and the head of EQT Exeter’s multifamily business, Bryan Lamb, are both based in Chicago. “So that’s going to allow for some easy integration,” Fitzgerald says.

Not all of the firm’s M&A transactions are expected to be as seamless. BPEA Real Estate, for example, has to date raised diversified funds and does not have sector-focused teams.

When asked if BPEA Real Estate would stop raising general real estate funds going forward, Fitzgerald responds: “First of all, we would never want to say never. And secondly, I would also, again, highlight that there will certainly be an evolution; we’re not going to go from A to Z or alpha to omega overnight.” He maintains, however, that he and Mark Fogle, head of BPEA Real Estate, are “100 percent on the same page about the fact that we will ultimately have sector-specific funds in Asia that are vertically integrated platforms.”

Team dynamics

For Roger Singer, partner at law firm Gibson Dunn, one factor working in EQT Exeter’s favor as it combines with multiple new platforms is the consistency of the team.

Indeed, “the management team is a well-seasoned, cohesive team which has worked together for 14 years on average,” according to the PSERS fund document.

“There’s a real continuity, and it’s always been a plus in M&A activity to say, ‘The fact that we’ve had this continuity suggests we know how to make a team work,’” remarks Singer, who was worked with Fitzgerald since the formation of Exeter’s first fund in 2007.

Another factor benefiting EQT Exeter is its compensation structure, with a large percentage of the team receiving a share of the profits, according to NYSTRS’ Gillan. “We’re always keen on those alignments of interest when the team has money in the deal,” he says. “There are all sorts of splits on how much carried interest everyone gets. And Exeter does a great job of providing enough carried interest to the team. It’s a great motivator, and it’s shown in their performance.”

For Singer, a key underlying cause for an unsuccessful merger or acquisition is the inability to raise money. “One of the real tests if you’ve been acquisitive in a short period of time is: do you get to that next step – a successful fund?” he says. “If you raise the fund successfully, then people tend to be happy because whatever their role is, they depend on having capital. If after you merge, the business goes well, that eases the pressure. Conversely, if things do not go well, maybe because the economy softens, then all of a sudden there is massive pressure on the personal relationships and also the costs of leaving drop. So people are more likely to break up.”

On the topic of integration, Fitzgerald stresses the importance of putting the investor or tenant client first. “We feel we have performed at the top levels of the industry because of that mentality,” he says. “And when you worry about others before you worry about yourself, and you put the client before yourself, integration becomes pretty easy, because the focus is just on the client. When integration goes poorly, it’s because the executives or the professionals in a firm are worried about themselves more than they are about the client. And so I don’t expect to spend too much time on integration.”

A different way

Fitzgerald is aware he does not fit the typical mold for the global head of a real estate business. He is not a big city executive, choosing to live and work in suburban Philadelphia. He has never worked on Wall Street. He is a devout Catholic and makes repeated references to his faith while talking about his business. He describes his morning routine as follows: “I’m up at 5:45 am every day, I go to mass at 6:30, I’m in the gym by 7:15, I’m in the office by 8:45.”

“We don’t believe you can be a jack of all trades; we believe you need to be the master of one”

Still, Fitzgerald has not shied away from being different since the early days of Exeter. As the story goes, in the initial stages of raising its first fund, the firm had not yet decided whether to focus on industrial or office, since the team had developed expertise in both while working at Liberty Property Trust. But in pitching the vehicle to a placement agent, Exeter learned there was a lack of funds targeting industrial real estate strategies.

And “then the die was cast,” Fitzgerald recalls. “It wasn’t what I would call an exceptional strategic decision. We didn’t know e-commerce was going to become e-commerce, we didn’t know that warehousing was going to become more popular than every asset class on the globe. But we had skills in it, and we knew others didn’t have skills in it. So we certainly know that we could differentiate ourselves earlier in our professional, independent, private equity fund lives.”

Looking ahead, “I hope to garner more market share over time by doing it in a different way,” he says. “There is the proliferation of many firms that are lookalike. And we don’t look like any of them.”