AMERICAS NEWS: Harvesting opportunity

Successful real estate investing requires the same stewardship as farming, according to former Madison Dearborn Partners' real estate head Brian Newman. In order to reap a good crop, farmers must endure back-breaking work seeding their fields and be constantly vigilant to ensure the crops that grow are of sufficient yield. It's not a case of throwing some seeds in the ground and hoping all will be well at the end of the season.

“It's the same with real estate investing,” said Newman. “You cannot harvest outstanding returns unless you put in a lot of work determining the best areas of investment and constantly work hard to ensure you are maximising every aspect of an asset and its operations.”

Spinning out of Madison Dearborn Partners (MDP) last month, Newman understands what lies ahead. “It's one of those things that is both very exciting and scary at the same time,” he said. The excitement lies with the fact this is one of the most “compelling” investment opportunities seen in decades. The fear is starting a new firm in such a difficult economic environment.

“It's one of those things that is both very exciting and scary at the same time.”

Brian Newman

Newman formed Ceres Real Estate Partners with ex-MDP chief financial officer Michael Wilson and ex-iStar Financial veteran Jeffrey Digel last month.

Initially, Ceres – named after the Roman goddess of agriculture – will invest capital through joint ventures, focusing on a variety of sectors, but most notably in the hospitality sector, distressed debt and equity situations, as well as in healthcare and senior housing.

Even though hospitality may seem “risky” to many investors, Newman said the Chicago-based firm was beginning to see some real opportunities emerge.

Ex-Santa Monica Hotel Group president Pamela Greacen has been hired as head of Ceres' hospitality investments. Together with Newman, Greacen will target luxury-branded hotels operating with a cash-flow loss, in a bid to take over the assets, either with or without management and brand. A former MDP joint venture with Leading Hotels of the World has also been transferred to Ceres, which will allow them to execute this strategy as well as provide further investment opportunities.

Distress though will be the main focus for Ceres, particularly in the debt space. Digel will lead Ceres' debt investments after previously working at iStar as executive vice president of investments and co-head of the firm's investment committee, while Marcus Buerosse, who previously did workouts for organisations such as Barnett Banks and Ocwen Financial, will lead individual asset restructuring efforts.

Newman said Ceres would look to debt not only for its potential yield but also as a means of getting control of the underlying asset. Ceres would concentrate, he said, on the senior mortgage space and only if the debt was “incredibly stable”, would the firm look at other parts of the capital stack.

With half of Ceres' team hailing from MDP, the firm maintains close ties with the private equity shop, with Madison providing Ceres' IT, accounting and legal infrastructure. In return, Ceres will continue to help MDP analyse the real estate aspects of their corporate portfolio. “As market conditions changed, Madison wanted to focus on their core business portfolio,” Newman said. “But from a real estate standpoint there are going to be great opportunities going forward, so this was a good thing for us to do.”