ASIA NEWS: Leaving on autopilot

Last month, PERE reported that Doug Sesler had left his position as head of global real estate principal investments at Bank of America Merrill Lynch (BoAML).

The business is rapidly winding down. It is really a caretaker job there now.

Doug Sesler

Reflecting something of a curtain call for the once $8 billion global platform, his departure means that, but for a small handful of staff overseeing the bank’s principal investments in the Americas and even fewer people in Asia overseeing its $800 million co-investment in its ill-fated Asian Real Estate Opportunities Fund, the business is no more.

With Sesler gone, the final part of the real estate platform’s wind-down is effectively on autopilot. “The business is rapidly winding down,” he said. “It is really a caretaker job there now.”

Sesler, a New York resident who has been in the real estate investment sector in one guise or another for the past 27 years, is now looking to the future and wants to work in principal real estate investing again soon. “I’m just trying to get a feel for what’s out there,” he said. “It could be an operating business or a fund and asset management platform; both are situations I’m looking at.”

When BoA met ML

Shortly after acquiring Merrill Lynch for approximately $50 billion in January 2009, a senior committee of Bank of America executives, including current chief financial officer Joe Price, met with Sesler, then co-head of real estate investment banking, to determine the future of its global real estate principal investments division. Ultimately, it was decided that Sesler would take charge of the platform to oversee its wind down.

Doug Sesler

At the time, the business held equity positions valued at approximately $8 billion, $3 billion of which resided in funds. Featuring a $2.65 billion Asia opportunity fund, two European opportunity funds – the €204 million Bosphoros Real Estate Fund 1 and the €260 million Merrill Lynch Real Estate Opportunity Fund – as well as various joint venture partnerships in the Americas, each component had its own set of circumstances and potential futures. It should hardly be surprising then that it took almost two years for the wind-down to happen.

In the end, European head Roger Barris led a management buyout of the European business ,while the management of the larger Asia business was handed to Blackstone as part of a deal with the main fund’s LPs, which also included a settlement for actions considered non-fiduciary valued at about $650 million.

“I put forward an entire strategy on how to wind down the global business,” Sesler said. “The spinout of Roger’s business was something I engineered with him. That was the approved transaction for exiting those assets.” Meanwhile, the joint ventures in the US were modified so management responsibility would fall to BoAML’s partners.

I’m a big believer that the way you develop good relationships in this business is to do a transaction with somebody. Like it or not, this was a transaction

Doug Sesler

While the wind-downs in Europe and the Americas progressed with little controversy, it was a different matter in Asia. Since the departure of regional head Timothy Grady (who later joined Mount Kellett Capital Management) just months after Sesler was appointed, the resolution of the business, starting with a sales process that ultimately failed, stunned the market when the $650 million settlement was offered to the platform’s fund LPs. That there was a settlement surprised few, but its size raised more than a few eyebrows. “That obviously was a more complicated situation,” he added.

Sesler described the decision to pay out (it was not a lump sum, but a series of different payments, some fee-linked) as a “top of the house” decision that “goes up our chain.” Not keen to discuss the settlement at length, he nonetheless said: “You don’t make these decisions lightly. There was recognition that, if you let things fester, the potential impact on the fund’s underlying assets could have cost more. The bigger, swift solution was more logical.”

In the end, BoAML achieved almost 100 percent acceptance from the LPs. “I think they would say we did the right thing,” Sesler said. “A lot of GPs are being accused of abandoning LPs and not really acting as fiduciaries. While I think the fund wasn’t the best result in some people’s portfolios, I think how we handled it was professional.”

Speaking personally, Sesler noted that the process enabled him to develop good working relationships with many of the LPs, something that could be beneficial in his future endeavors, whatever they may be. “I’m a big believer that the way you develop good relationships in this business is to do a transaction with somebody,” he said. “Like it or not, this was a transaction, although not the kind I want to engage in a lot in the future.”