New life after Starwood, Macquarie, et al

With capital raising, the real estate market and general economic conditions improving, US managers are finding the courage to spin out and go solo.

News last week of Starwood Capital Group’s former managing director Marc Perrin leaving the Greenwich, Connecticut-based firm to start his own boutique investment firm, The Roxborough Group, was just one of many instances in recent months about executives from major groups leaving to start their own business.

In addition to Perrin, it was revealed in March that Blake Berg and Mark Ibanez departed from JPMorgan Asset Management to start their own investment management firm, Wicker Park Capital Management. Jack Berquist and Desi Co recently left Macquarie Capital to form Accord Group, along with former Mesirow Financial executive Jeff Sobczynski. And it was announced this month that Jonathan Kern left his post as president of global investment management at GE Capital Real Estate to strike out on his own too.

These are just a few of many recent examples in which real estate professionals in the US have decided to spin out from global platforms to form their own shops. Though individuals leaving large firms to go into business for themselves is nothing new, the practice appears to be gathering momentum of late.

It should be noted that there have always been benefits for a manager to launch a small firm. And there are advantages for investors to back individuals or spun-out teams. There are a number of investors that have always been comfortable with investing in an individual or team with a good track record. These investors typically have placed less emphasis on the firm where they work.

Some investors like the personal attention they receive from a smaller GP. The prospect of paying lower fees might also be attractive. In addition, smaller platforms can be more nimble putting capital to work, and they don’t often require large amounts of capital to get going, as many look to invest in small- to mid-sized deals.

But why have so many real estate professionals decided that now, as opposed to last year or the year before, is the time to go into business for themselves? There is no one answer. But there are a handful of factors contributing to this rise in independent spinout firms. One factor is a relatively improving capital raising market. A couple of years ago, it was difficult to raise money as pension funds in particular tightened their belts and reduced their investments to most alternative asset classes, including real estate.

Between 2011 and 2012 the idea for an individual to leave the safety of a larger firm to start his or her own business was seen by many as a scary idea – until the beginning of 2012. That fear has subsided somewhat thanks to a slew of initiatives by the pension funds to engage with first-time funds and news businesses in general.

Emerging managers programs, like those established by the Employees Retirement System (ERS) of Texas and the Teacher Retirement System of Texas, are growing in popularity among their peers and is providing confidence to those pondering going solo. These investors say they see the value of fostering and investing in individuals and teams with proven track records forging their own path in the market.

That impetus is set against a generally improving capital raising market. In the past 12 months, investors including ERS, Texas Municipal Retirement System, New Mexico Educational Retirement Board (ERB) and The San Francisco Employees’ Retirement System (SFERS) have increased their allotment to real estate. In addition, investors such as the Ohio Bureau of Workers' Compensation, New Mexico ERB and SFERS have also recently shifted their focus to non-core investments. All of which means there’s more capital to go around.

Then there’s the bricks and mortar itself. There is increasing belief that values in the real estate markets of the US and the economy stateside in general is picking up from cyclical lows. With investment confidence on the rise, the confidence of those looking to make it for themselves rises in tandem.

It takes a brave person to step from the comforts of an established investment house and go it alone. But at least there are visible signs of a supportive environment in which to do so.