Capricorn Investment Group, the family office vehicle of billionaire eBay co-founder Jeffrey Skoll and other high net worth families, has agreed to become a cornerstone investor in a new pan-Europe club investment vehicle, with an initial commitment of €25 million.
The Palo Alto, California and New York-based investor has committed the equity to London-based Family Office Real Estate Partnership (FORE) which is seeking to buy European real estate on behalf of up to 20 family offices from around the world.
Speaking at London’s Goring Hotel this morning during FORE’s launch, Stephen George, co-founder and chief investment officer of Capricorn said: “FORE’s strategy of seeking out deep value and a back-to-basics approach fits very well with our own long-term investment philosophy.”
FORE managing partner Basil Demeroutis, who used to be a partner of Capricorn responsible for the firm’s global real assets portfolio, said that rather than designing a private equity real estate fund model, it was determined to invest on behalf of family offices at 50 percent of the fee cost of a large global private equity real estate fund.
The company said that in a traditional fund, fees could be 50 percent – 60 percent of the investors’ initial capital on a typical 15 percent gross IRR transaction and that traditional funds had layers of hidden costs investors never saw such as acquisition fees, disposition fees, and expenses.
For its part, FORE is seeking to attract between 12 and 20 family offices to commit to its investment club and is targeting returns of 12 -15 percent net of all fees for the investors by investing in commercial real estate directly. The company said it was bidding on properties in the UK, Germany and Paris and was close to its first deal.
In an examination of the private equity real estate fund model, Capricorn’s George said the family office had been actively investing in real estate for more than a decade and had a 50,50 split of investments between fund partnerships and direct deals.
But he argued the global financial crisis had “revealed issues” in the fund model, and in real estate funds in particular with “lots of fees” and lack of total transparency. He said the industry had become “producterised” leading to a change in the basic dynamic of what an investor was trying to do. He went on to say family offices were “yearning” for a new model – a “more direct model that one couldn’t get in a fund”.
FORE has structured its “club investment” so that is has a two-year investment period with no fund layer. Each asset will be put into a standalone special purpose vehicle owned directly by the club members. There will be a degree of discretion on a deal-by-deal basis.
The firm is currently focused on the UK (particularly London and the south east), Germany, Paris, and select prime locations in other parts of Europe.
It is seeking assets characterised as B buildings in A locations of lot sizes of between €10 million and €30 million that can be purchased with 50 percent leverage.
FORE has a team of eight professionals in London. Along with Demeroutis, the company is being run by Peter Dove, who has previously managed portfolios for RREEF Real Estate and Hendersons.
The company pointed out that there were currently 6,000-plus family offices globally, with 300 single family offices and 100 multi-family offices in London alone. According to Forbes magazine, there are 1,126 billionaires in the world that have $4.6 trillion – that’s larger than the entire hedge fund industry with $2 trillion of assets.