According to Jeff Jacobson, global chief executive officer of LaSalle Investment Management, and Sue Lloyd-Hurwitz, managing director for Europe, the real estate investment management firm is actively looking at the acquisition of teams in Europe and elsewhere.
In the firm’s first interview since it announced that JER Partners had agreed to the transfer of its two primary opportunity funds in Europe, the pair noted that there are a significant number of smaller boutique firms that might be on their third fund but likely are finding life quite challenging. Coupled with increased regulatory burdens and compliance requirements, some of these firms may be looking for more stable platforms with scale in order to bear those costs.
Therefore, it would not be a surprise if LaSalle continued adding further mandates in the months to come, which as Jacobson pointed out is a departure from the ‘organic’ way LaSalle has grown traditionally.
With regards to JER, LaSalle was picked as the preferred party ahead of two other firms, the identities of which the firm says it does not know. The agreement would see JER transfer to LaSalle the management of JER Europe Fund III, which raised €809 million in commitments in 2007 and made 17 investments in assets valued at €1.9 billion, as well JER Europe Fund II, which raised €123 million in 2003 and bought €540 million of assets. The agreement does not include the Marbleton Property Fund, a $321 million joint venture with Moscow-based Alfa Capital Partners.
In addition, the agreement would see LaSalle take on the employment of key members of the JER asset management team in Europe, which is led by Chester Barnes. A deal, however, is not yet complete.
Instead, LaSalle has signed a “framework agreement” with JER as to how to transfer the general partner to the Chicago-based firm. Investors in the two funds, which include the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, currently are considering the details.
There is to be no consideration paid to JER, as it is no secret that both funds have not performed well. As Lloyd-Hurwitz put it, the job at hand is about “value recovery,” and investors already know they will not be getting all their money back.
Details now being ironed out include the structuring of some retention packages, although LaSalle declined to answer questions such as whether financial benefits or concessions would be offered to investors to help gain approval for the transfer.
So, what motivated LaSalle to get involved in a process that dragged on for well over a year? “The JER opportunity was a situation in which JER felt it was time to find a better home for their funds as they focus on the US,” Jacobson said. “There were core team members that we thought would fit well given their capabilities in Central and Eastern Europe, whereas our focus is currently on the UK, Germany and France. Plus, this transaction is about gaining some client relationships with groups that we historically have not done business with. That could lead to deeper relationships.”
And how will LaSalle win over those investors? In a word, it’s performance. “Demonstrate as much value recovery as possible,” said Lloyd-Hurwitz. “We are massively motivated to do that because these are new clients to our firm.”