BLUEPRINT: The anti-maverick of value

According to Jeff Jacobson, global chief executive officer at LaSalle Investment Management, the Chicago-based real estate investment management firm “knows who we are and what we want to be. We have a team-oriented culture of always doing our very best to invest and manage our clients’ capital throughout market cycles in good times and bad times.”

Like most large firms, LaSalle – with about $48 billion in assets under management and 700 employees around the world – made mistakes in the run-up to the global financial crisis, such as continuing to invest in some places where it thought it could still find value. Still, it has arguably made fewer mistakes than most and has since come out of the mayhem with a strong global brand and its reputation intact. Indeed, Jacobson passes on a remark from a colleague that there is only one firm on a list of top 10 real estate investment management firms both in 1990 and in 2011, and that is LaSalle.

Ask professionals what they know about LaSalle and they will likely say it is a non-glitzy, client-first type of firm. It sounds like a cliché, but the way LaSalle tries to operate is by putting performance first and letting good things follow from that. It is not really a place for the egotistical maverick. 

Mark Burton, the former chief investment officer of the Abu Dhabi Investment Authority, who invested in LaSalle funds in Europe and Asia as well as separate accounts in the US and Europe, says he liked working with the firm. He describes Jacobson as a “thoroughly down-to-earth and straightforward guy. Just as importantly, he has built a very good team around him. If you look at the defections from LaSalle, they are not that high, and that is a pretty good indicator of management in today’s market.”

LaSalle may have lost a senior figure in Jack Chandler, the former head of Asia who recently joined BlackRock, but it just made a new hire in the shape of Jon Zehner. The former global head of real estate investment banking at JPMorgan Chase will work directly with Jacobson in the newly created post of global head of capital markets, starting in March.

The corporate culture

The way Jacobson sees it, LaSalle is not a firm that readily accommodates ‘me first’ individuals. He admits that the firm can be a little “too comfortable and collegial” at times, but he qualifies that perception. “We want people that will be sharp-elbowed and aggressive outside in the market, but team oriented and non-political inside the firm. That is a hard combination to find,” he says. “When clients hire LaSalle, they are not necessarily hiring an individual superstar fund manager. They are hiring us as a stable house with very deep and experienced resources. It is not an organisation full of prima donnas or egos.”

It seems safe to assume that Jacobson is no prima donna himself. He certainly doesn’t come across like one. A senior colleague jokingly says in front of him that “he can do grumpy well,” and there are clues that he listens to younger staff as well as senior managers that might have been with the firm a short time compared to his 25 years of service.

For example, within one year of joining LaSalle from MGPA, European managing director Susan Lloyd-Hurwitz drove through a corporate relocation of its dated London office to a Google-esque open-plan office on Curzon Street. At first, Jacobson was skeptical about elements of the idea. The proposed move would see the introduction of a seating scheme called ‘variable density desking’, which actually turned out to increase morale and communication in the office while saving the company money.

When Jacobson is in the London office instead of his Chicago base, he sits out in the middle just like everyone else. Everyone agrees the new-fangled office works well, but Jacobson initially thought many areas wouldn’t be used. Nodding to various spaces, he says: “What I did not anticipate is that these parts here would be used for client meetings. I felt a lot of this would be sterile and people would have their lunches and just make a lot of mess, but I was wrong.”

One could label Jacobson a ‘fuddy-duddy’, but investors partly like LaSalle precisely because of the experience of its senior team. For example, Jacques Gordon, global strategist, and Robin Goodchild, international director, are no spring chickens, but they are admired for the depth of their research. Indeed, the pair just released LaSalle’s 18th annual global Investment Strategy report for 2012. The report has too many pointers as to where LaSalle will be putting its money to mention here, but sweeping themes include ‘capital gap strategies’, meaning excellent buying opportunities and mezzanine debt situations that will emerge out of the unusual combination of factors such as deleveraging, stalled recovery, scarcity of risk capital and regulatory changes. They also mention growth-orientated strategies in the Asia-Pacific region, as well as pockets of opportunity in established markets. Core strategies are a third theme. 

While clients may benefit from Jacobson’s experience and that of his senior colleagues, LaSalle itself is trying not to disregard youthful exuberance. A while ago, it ran a consultant-led focus group of young people within the organisation to ask: ‘Where is it that senior management just do not get it?’ 

Jacobson says: “You want aggressiveness and entrepreneurialism – you want to be creative in accessing investment opportunities in the market – but then balance that with maturity and perspective without the younger professionals feeling ‘Oh no, it is those old timers saying no again.’ I started out as an acquisitions guy in my early career, and I walked out of investment committee meetings, where the committee turned me down, and thought: ‘They don’t know anything.’ In some cases, I was right. In other cases, they saved us and the clients a lot of money.”

Passion for real estate

Jacobson’s connection with LaSalle began way back in 1986, when he joined LaSalle Partners in his native Chicago. After studying economics at Stanford University, he initially worked in New York for the Louis Dreyfus Group. The family-owned commodities and energy company gave him his first taste of real estate, having made the decision to branch out into sector in 1971. Jacobson was offered a job working for the venerable chairman, Gérard Louis-Dreyfus. 

“You could say I was either his ‘assistant’, which sounds great, or his ‘gofer’, but that is how I got into property because the family was investing into real estate,” Jacobson says. “It was a great experience, and I decided that I liked real estate and wanted to move back to Chicago. When I talked to the chairman about moving back to Chicago, he said: ‘Well, if you really have your heart set on that, there is only one firm you should be at, and that is LaSalle Partners. There already was a strong connection as Bill Sanders, founder of LaSalle, had attended Cornell University with the CFO and head of real estate at Louis Dreyfus. They called Bill and I met him, and here I am today.”

It is easy to spot that Jacobson likes real estate. In fact, that is an understatement. He is well known for his passion towards the asset class, and colleagues sometimes gently rib him for going into too much detail on occasion. One can ask him anything about a city, country, style of investing or individual property types, and he could talk all day if given the chance. For example, when he starts talking about Japan, where LaSalle is in realisation mode for its Japan Logistics Fund having announced the $1.6 billion sale of a portfolio to a joint venture of publicly listed Global Logistics Properties (GLP) and the China Investment Corporation (CIC), he has to be stopped for going into too much detail.

“Do I love real estate?” Jacobson posited. “Yes, I really do. I love investing even though I don’t invest every day in my current role. My passion is this business, which is very humbling because the future is never clear and not every investment decision works out. However, it also is incredibly satisfying when you get it right. Regardless of who you are and how you are paid, if you don’t take your successes and your failures personally, then I just don’t think you should be in the business of investing other peoples’ money.”

While talking about Asia markets, Jacobson also gives clues as to his personal penchant for ‘value investing’, as opposed to investing to catch growth cycles. When mentioning how LaSalle has done little in China to date and nothing in India, he says: “I know myself, and I am more comfortable as a value investor rather than being a growth investor. In China, there has been a big wave going on there and you can play that game of development, but I naturally have a harder time with that and need colleagues who can push the growth opportunities. Everyone is wired a certain way, and I am wired to like things ‘cheap and ugly’.”

Incidentally, Jacobson notes that the current cycle in China means that the firm is starting to see some interesting deal flow and has made some selective investments in the last 12 months. LaSalle doesn’t think the bottom will fall out of the market, but it thinks the country will experience a “bumpy patch.”

Being a ‘value investor’ is certainly something Simon Marrison, LaSalle’s head of Europe, sees in his boss. He adds: “In terms of investor perception, I would say that investors recognise his passion for real estate and his general enthusiasm. They also recognise him as one of the very few real estate professionals that has true global experience.”

A people business

LaSalle’s business is certainly global, split almost equally between the US, Europe and Asia, and Jacobson has worked in all three regions. The UK and Continental Europe technically is its largest region in terms of assets and people (it employs 235 staff in Europe), followed by North America and Asia.

As a multi-strategy company, LaSalle manages a wide variety of funds from closed-ended to open-ended, as well as separate accounts and a securities business. In North America, the firm is known for its core and value-added strategies and for offering specialist products for such investments as medical offices and the Mexico market. Meanwhile, it is an opportunistic real estate player in Asia and has a mixture of core, value-added and opportunistic strategies in Europe.

Jacobson thinks a large real estate investment management firm such as LaSalle is best thought of as a service company, in that it is all about people and clients. He mentions this while discussing recent mergers and acquisitions. In Europe, it is in the process of taking over the management of two opportunistic funds from JER Europe – a transfer that includes the staff – while in Australia it recently took over Trinity Funds Management, boosting assets there by $690 million to $1.8 billion.

This M&A activity is quite unusual for a firm that has mostly grown organically apart from the big corporate merger that took place in 1999 between LaSalle Partners and Jones Lang Wootton. Despite that, LaSalle recently has been spotting opportunities to take over other platforms. “As the world changes and as you see a trend of consolidation in the industry, we are looking selectively at acquisitions,” he says.

Jacobson stresses, however, that this corporate activity is about serving clients, not trying to be bigger for the sake of being big. It would be easy to assume Jacobson and his senior colleagues would be smarting at the way rival Richard Ellis seems to be successfully combining CBRE Global Investors with ING Real Estate Investment Management, making it twice as big as LaSalle in terms of assets under management, but they are not.

“Becoming bigger is not necessarily a value-creating position,” says Jacobson. “All you are really buying or taking on are client relationships and the people they originally entrusted with their money. To clients, ‘big’ doesn’t mean anything. If anything, they are worried about big. They want to know: ‘What does this organisation bring to me as a client? Are they focused on me?’ If big accomplishes that, then great. If not, being big as a goal unto itself can be a real problem.”

All about the clients

On the JER Europe opportunity, for example, the investors felt it was time to find a better home for the funds. “We found a situation where we felt there were some core team members that would sit well in our organisation with capabilities in areas like Central Europe, where today we do not have a platform,” says Jacobson. “And they brought some client relations with groups we historically have not done business with.”

Assuming LaSalle does not take over a large investment manager such as the currently up-for-sale RREEF, which on paper looks like it might have too much of an overlap of personnel, product and clients to make a good fit, it is more likely to grow by further small additions.

Small mergers and acquisitions aside, there clearly are other ways LaSalle intends to remain a big player, and indeed to grow. These include making additional senior hires to serve clients and making a bigger push into exploiting the real estate ‘debt gap’.

As an example, LaSalle recently hired Zehner to head up  capital raising, new product development, merchant banking and large-scale, cross-border strategic investments with partners. Based in London, he will become a member of LaSalle’s global management committee and will work directly with Jacobson. “Global investors are requiring an ever-increasing level of sophistication, customised solutions and ideas from their managers, including co-investment, club and joint venture deals,” says Jacobson.

Another example is Chris Brett, who was hired from the London office of parent company Jones Lang LaSalle. Brett was brought on board last year as the new head of European strategic partnerships to help marry up the needs of investors that LaSalle knows want more direct control over investments.

Jacobson is all too aware of how certain Asian investors from China, Korea and Malaysia, for example, do not necessarily want the ‘cookie cutter’ approach of being in a blind commingled fund. He notes how Brookfield Asset Management and Rockspring Property Investment Managers have “done a good job” of knitting together the needs of investors with real estate investment opportunities. “We have done some of that, but it needs a real organisational focus to accommodate evolving client needs, hence adding people like Chris Brett,” he says.
Global opportunities

As highlighted in the firm’s annual Investment Strategy report, LaSalle is seeing specific opportunities around the world. Still, it could be accused of not having found all that many opportunities to invest.

Nevertheless, Jacobson says there is potential to start doing more value-added and opportunistic investing in Europe to capture some of the opportunities caused by dislocation in the region. He cautions, however, that one has to be selective and patient given the macroeconomic and political situation in the Eurozone.

LaSalle also has an active special situations team in Europe – led by Amy Aznar – that is focused on taking advantage of deleveraging in the region. Indeed, the firm sees a need by banks and borrowers for sustainable capital and is investing in all parts of the capital structure. The big focus is on the mezzanine debt gap caused by senior banks buckling under regulatory pressure and the European macro situation. The team has about £200 million of discretionary capital to invest.

There also is plenty of other capital to invest in Europe, including €600 million of European capital and £600 million of UK capital that LaSalle raised last year. Some of that money is from Germany, where the firm was granted a Kapitalanlagegesellschaft (KAG) licence in 2011, providing it with a regulatory and tax efficient way to raise equity from German corporate pension funds and others. It started with €200 million from investors, who have since been re-upping. Other successes include winning a pan-European separate account from a UK pension fund that wants very secure core property. Meanwhile, it has clients in the UK diverting allocations from bonds to long-leased, inflation-linked assets in a trend that began more than one year ago.

Overall, however, LaSalle has put less money to work in Europe than it initially thought it might. Indeed, as the European sovereign debt crisis grew, the firm took a wait-and-see attitude, focussing its efforts on those matched with various investor objectives, such as the UK, Germany and France. In doing so, it invested around £700 million in the UK and about €400 million on the Continent last year.

In the US, Jacobson observes that significant capital is still coming in for core product. As a result, the firm launched an open-ended core product two years ago to capture some of that wave. The $1.7 billion fund was backed by blue-chip investors such as Teacher Retirement System (TRS) of Texas, which acted as a major seed investor, and LaSalle has cautiously put $1 billion to work so far.

Furthermore, LaSalle has enjoyed continued success with TRS, which recently awarded another $200 million to the firm to invest in a co-investment programme into other general partners’ funds.

Meanwhile, in Asia, LaSalle is rumoured to be raising its fourth Asia opportunity fund, having decided to release investors from $600 million of commitments in its third fund, which originally raised $3 billion. On that particular decision, Jacobson says: “We saw opportunities up to a certain point. After that, we thought it was better to return equity and move onto our next fund.” For its latest Asia fund, the firm is rumoured to be targeting a more modest $750 million.

No more hysteria

All in all, the global market is a very different place to the one LaSalle operated in during 2006 and 2007. As a result, the firm needs to operate differently.

Jacobson is frank as he admits there were some things at the top of the market he truly supported. “Looking back at ‘06 and ‘07, we all knew it was getting a little overheated, but somehow we thought we could be selective and take a micro strategy that would be somewhat immune even if things went over the top,” he says. “We were better at holding back capital than a lot of people, but we still fell into the trap of thinking we could successfully navigate a market that was getting pricier and pricier.”

During such phases of market cycles, Jacobson notes: “There is always an element of thinking: ‘I have to be smarter in finding good opportunities than our competitors who are putting money out’. It is very hard to say to an investor that it shouldn’t be giving us money.  During these frothy periods, you need to use your experience from previous cycles to stay disciplined and focused.” 

Now that the global real estate markets have bottomed out and are beginning to recover, turning away investors is probably the last thing Jacobson and his colleagues at LaSalle are thinking about.