Some say the mission of a first-time fund manager is to raise a second fund. With that in mind, Brockton Capital is on course for some accomplishment.
The firm, which is based in London's Soho area, raised £150 million (€189 million; $300 million) in 2006 for Brockton Capital Fund I, a UK opportunity vehicle. But it is now closing in on a follow-up, aiming to double the size of the first fund.
Brockton Capital was founded by David Marks, formerly of The Blackstone Group, and Jason Blank, a former Merrill Lynch real estate principal investment professional. Speaking with PERE, the pair said they had proved it was possible to hit 20 percent-plus IRRs in less than optimal conditions for an opportunity vehicle by taking a “roll-up-your-sleeves approach, allied with careful stock selection”.
The pair said they had proved it was possible to hit 20 percent-plus IRRs in less than optimal conditions for an opportunity vehicle.
The first deal in Fund I has delivered an IRR of 68 percent and a 3.5x cash multiple, according to the duo. The firm acquired the office property 63 St James's Street in London's West End in March 2006 at a time when Brockton had already warned investors that UK property was “expensive”.
Nevertheless, the firm's strategy to add value to the asset worked. It unusually negotiating a rental uplift on a rent review one year prior to the scheduled rent review date with the tenant, wealth manager GAM. Having assessed the supply of space for such firms in the area, and discussed asset management plans for the property, Brockton was able to present the case for rent terms at more than £100 per square foot – and set an all-time record for a rent review in the West End of London.
This summer, the exit arrived having analysed the dwindling pool of willing buyers for London office property. It targeted Middle Eastern investors and sold the asset for around £38 million to a private client of Citi Private Bank, giving investors in Brockton's fund the 3.5x multiple.
Other investments in the first fund include participation in the £2.2 billion buyout of private hospital chain, General Healthcare Group, in conjunction with Apax Partners healthcare team. The group owns 57 out of the 210 private hospitals in the UK. The first fund has also acquired serviced apartments in London, and a collection of food-led “gastro-pubs” in prime London areas that are yielding 15 percent on an unlevered basis. The investments are still on course to achieve projected 20 percent-plus returns due mainly to the increasing income at the assets.
According to Marks and Blank, the second fund is likely to invest in different asset classes and strategies such as high-yielding buildings and debt. The pair said they are well suited to current market conditions, with Blank having been active in acquiring non-performing loans in Asia for Merrill Lynch and Marks having experience in purchasing distressed assets while at Blackstone.
The firm is expected to hold a first close on the second fund in the new year.