AMERICAS NEWS: The West is not enough

It’s a conundrum facing many fund managers today – how to grow a business at a time when raising new vehicles is, to put it bluntly, brutal.

For PCCP, the answer could be through the acquisition of other platforms – a kind of “assets under management in reverse”, as partner William Lindsay explained.

It’s an interesting way for us to grow in an environment that doesn’t promote growth.

William Lindsay, PCCP

 

After acquiring the two real estate mezzanine funds of Lehman Brothers in December, PCCP has been eyeing the acquisition, or partial acquisition, of other existing groups as it looks to expand its presence from a predominately West Coast-focus to one with a national footprint.

Although Lindsay and partner Greg Eberhardt declined to name names, the pair said the firm was currently looking at other possibilities to take over funds, and perhaps GPs.

“It’s an interesting way for us to grow in an environment that doesn’t promote growth,” said Lindsay. “But there will be a limit to this as you have to consider diminishing economies of scale, the people you are bringing on board and the upfront investments needed with no guarantee of return.”

It is also a strategy that would allow the firm to grow its investor base of roughly 40 institutional investors. In the Lehman deal, PCCP bought the bank’s two real estate mezzanine funds, taking over Lehman Brothers’ GP interest in both vehicles, as well as bringing on board the funds’ investors (14 institutional investors in each fund plus a small number of high-net-worths) and a 10-strong staff, led by Yon Cho, in New York. Lehman Brothers Holdings has retained its LP interest of roughly 20 percent to 25 percent.

Lehman Brothers Real Estate Mezzanine Partners I and II, which closed on $1.1 billion of commitments in
2005 and $668 million in 2008 respectively, have since been renamed PCCP Mezzanine Recovery Partners I

2011 will be a better opportunity than 2010, and 2010 will be better than 2009, but that’s only because you’re comparing activity to historic lows.

William Lindsay, PCCP

and II. Cho said Fund II had approximately $300 million of uncalled capital, although the remaining commitments would be used to provide “capital for existing investments if necessary”.

Lindsay said PCCP was pursuing a dual strategy of originating senior mortgage loans as well as acquiring broken first mortgages in need of active workouts and recapitalisation. “There is a lot of debt out there today that is all about rolling up your sleeves,” said Eberhardt.

However, both Eberhardt and Lindsay believed there wouldn’t be the “feeding frenzy of opportunity” in relation to debt, particularly CMBS, in the coming years with much of the maturity loans afforded “temporary extensions. 2011 will be a better opportunity than 2010, and 2010 will be better than 2009, but that’s only because you’re comparing activity to historic lows,” said Lindsay.