ASIA NEWS: Defiance is in the closing

Since GreenOak Real Estate Advisors, the real estate investment management business of ex-Morgan Stanley Real Estate Investing triumvirate Sonny Kalsi, John Carrafiell and Fred Schmidt, was first conceived in 2009,
success was never a foregone conclusion.

In charge of the Wall Street bank’s principal investing platform immediately prior to the global economic downturn, specifically the much-maligned sixth global opportunity fund that was forced to write down a substantial portion of its equity, the trio’s plans for a new business met with a range of views.

Indeed, according to a report by the Financial Times in January, even the principals of Tetragon Financial Group, the hedge fund that provided GreenOak with $110 million of financial backing last year, were split. Co-founder Alexander Jackson ultimately was ousted from its board after disputing various investments, including GreenOak.
However, almost one year on from PERE’s revelation that the trio would launch a new platform, it appears that parts of the LP community are feeling more positive towards GreenOak. Some of that may be due to the fact that Schmidt’s Japanese division, GreenOak Investment Management, is widely expected to hold a first closing on its debut Asia fund, GreenOak Japan Fund I, next month.

Schmidt was unavailable for comment, but GreenOak is understood to be targeting $500 million in equity for the seven-year fund and already has soft circled substantial commitments. The fund aims to achieve net returns of 15 percent and equity multiples between 1.5x and 2x via investments in a Japanese real estate market that observers believe is coming back to life, thanks largely to prices that are bottoming out and more readily available debt.

One large LP told PERE he was an admirer of GreenOak’s Japanese proposition: “I have reviewed the proposed investment strategy and I like it. They would be an obvious start for our Japanese investment.”

One reason why LPs appear to be honing in on GreenOak’s fund, sources said, was because of its low fee structure. The firm is asking for pooled and back-ended promote and no acquisition fees. Incentive fees are more typical, at 20 percent above a 10 percent return hurdle, but investors committing significant equity could expect minimal promote charges on co-investments.

One rival GP remarked: “That’s how people are getting back into business. They’ll work for little in fund one”. But another GP countered:  “These are good guys. They made investors money over time. Certainly there were issues with [MSREF VI], but I think investors look at the people and integrity of their track record. I’m not surprised they are getting support.” Should April bring a closing as expected, GreenOak’s defiance will look more assured.