There are some folk for whom it is possible to assign the tag ‘visionary’ without being wholly convinced by it. However, in the case of Joseph E. Robert, who passed away in December, the label is justified.
According to those that knew him, Robert was an excitable, charismatic and dashing man that could “suck the air out of a room.” Born into a lower middle-class American family, he went on to play a huge part in creating the asset class we think of today as being private equity real estate.
As most everybody knows, the industry that eventually saw billions and billions of dollars of institutional capital raised by investment banks and others for US and global real estate really began as a small workout business stemming from the Resolution Trust Corporation (RTC), the government-owned asset management company created to take on the assets of failed savings and loan organisations in the 1980s. Robert, who had started JER Partners in 1981 while he was still in his 20s, saw an opportunity for the private sector to become involved.
Ted Leary, a one-time business associate and “friendly rival” in the workout business, picks up the story: “When the RTC legislation was going through the legislative process, Joe noticed that there was no provision for the government to use private sector firms to do, as Joe put it, the ‘biggest workout in history’. He called me and a couple of other guys who had come out of Capitol Hill before they had gotten into the real estate business (Leary had served as chief of staff to a US senator) and said we have to get the legislation changed to not only name, but mandate, the private sector to become involved. Joe was the leader in this, and we managed to do it.”
Robert’s cohorts roamed the halls of Capitol Hill, talking to friends still working in government, and they were able to get the Private Sector Amendment included in the bill. It was just one phrase of the whole legislative piece setting up the RTC, but that one phrase essentially created the private equity real estate business. It stipulated that the private sector would be used to execute the RTC programme. “That created the modern workout business and grew the modern real estate investment management business, which up until then really was a pretty quiet little industry,” says Leary. “The boom of straightening out problems led to the creation of the investment business.”
Robert himself took full advantage of this. Along with Leary, he founded a group called the Real Estate Capital Recovery Association. The association essentially was a collection of firms in the workout business. It was created because there were constant negotiations with the US government in setting up the RTC programme. Robert played an instrumental part in talks about the establishment of the rules and regulations.
The making of a legend
Robert was just 29 years old when he established JER. As a young man, he was famously kicked out of school, bummed around with a couple of dead-end jobs and had started working in his father’s property business. Reports suggest Robert sued his father over brokerage commissions and decided to go it alone. He quickly proved to be a hyper-entrepreneur and extremely successful at making money from property.
An excerpt from an internal JER newsletter from the mid 1990s reflects just how far the company had come. As reproduced on the next page, one article says that, on 12 June 1996, JER had set up a government services group (GSG) and commenced operations with the closing of a $250 million pool of tax liens sold by New York City to a special purpose trust. JER, as primary servicer, was managing 3,000 liens totalling $212 million, roughly 85 percent of the portfolio. Not only was the deal the nation’s largest delinquent tax lien securitisation deal ever assembled, but the transaction also positioned JER as a formidable competitor in emerging markets.
The article goes on to explain that GSG was led by John Chilson, who remained with the firm for 20 years, and was staffed with a highly talented team of 25 employees who transferred from JER’s FDIC contract, whose task was to liquidate and recover assets with a book value of $1.7 billion from four failed banks.
Below that article is a message from the man himself. In his trademark enthusiastic style, Robert begins: “This is one of the most exciting times I can remember in the 15-year history of the company. Many of you have been consumed by our capital-raising efforts. The legal, MIS and human resource departments have been working to complete the transition associated with the sale of the Goldman division (JER had a successful joint venture with the bank). The new business development group is busy with due diligence on a staggering $2.7 billion in deals currently under consideration. Asset managers are working to implement value enhancement strategies and meet 1996 disposition goals. The CMBS group has been busier than ever, surpassing all of our competitors and winning $3 billion in new special servicer contracts in the first nine months of this year – and they are not done yet.”
Robert goes on to describe how the GSG had been “working day and night” on the New York City tax lien contract, and then he mentions the fact that he had just returned from a business trip to France. A short while earlier, Robert had set up a subsidiary company to invest in Europe – and as such was one of the first US firms to try to emulate what had been accomplished in the US.
We learn from Robert in the newsletter that the JER subsidiary, Finestate & Robert, had just completed due diligence on $4 billion of French real estate. Robert – who one former colleague describes as having an almost adolescent enthusiasm and wide-eyed approach to his work – next says: “This is an incredible list of current activities and begs the question: how do we do it? The answer is teamwork. We have one of the most talented groups of professionals in the industry. By pooling knowledge, sharing experience and looking to each other for support, guidance and an extra set of hands or just a fresh set of eyes, we make it happen!”
Building a formidable team
Jeffrey Giller, who nowadays runs his own company, Clairvue Capital Partners, was the young man JER Partners turned to in order to start operations in Europe. Robert obviously became a fan of his young employee because he mentions in the newsletter the story of how Giller found Finestate & Robert “a little shorthanded” as he prepared to mount due diligence on that $4 billion portfolio referred to earlier in his message. Nevertheless, says Robert, Giller with just a few phone calls amassed a team from JER willing to go to France for three months to help out. Robert writes ‘three months’ in italics to emphasize the sense of commitment. “Within a week, Brad Coburn (who left in 2007 to become chief operating officer at Stoltz Management) and Stephanie Sims were on their way to Paris, and Gene McQuown (who went on to run JER’s European operations) was not far behind.”
The senior management around at the time of JER’s European foray included Jonathan Kern, who is now president of GE Capital Real Estate’s global investment management business. Kern stayed at JER for 10 years, becoming president and chief investment officer for the last six of those years before joining GE in 2003. There also was Deborah Harmon, who also served as president and chief investment officer. She was responsible for raising more than $4.5 billion in capital on behalf of eight of JER’s funds and spent 17 years at the firm before leaving in 2007 to co-found Artemis Real Estate Partners two years later.
Another real estate career launched by Robert was that of Gary Stevens, who went on to build and lead real estate operations for The Carlyle Group in 1996 and later joined Landmark Partners. He was JER’s chief operating officer. Then there was Cia Buckley, now a partner at Dune Real Estate Partners, who used to be president of the US fund business at JER. Later, there was John Murray, who now works at PIMCO. All these senior professionals – and many more – owe a debt to Robert and his vision.
One story that Stevens likes to tell is how he used to be a junior lawyer at a top Washington DC firm when Robert walked in one day. Although he was only in his 20s, Robert had come to meet the law firm’s senior partner to explain his grand plan to take over a bank facing insolvency. Following the meeting, the senior partner barged into Stevens’ office and said: “This is probably the stupidest thing I have ever done. This guy has got no experience, but there is something about him and we are gonna do this and back him.” Robert, it turned out, was so charismatic that he was able to get firms to work for him for free in the event a deal didn’t work out.
Giller has plenty of anecdotes about his old boss, but he has this to say about him: “There are a lot of people in the real estate and business world that refer to themselves as visionaries, but Joe was the real deal. He had the ability to sit up at 30,000 feet, spot trends and get ahead of them. He actually had the guts to spend his time, his energy and his business on those trends, and he was always right. He was truly prescient. That always impressed me, and I have met very few people who could do it.”
Giller had joined in 1993 when Robert was only 10 or 11 years older than him – something like 41 years old. And yet, to JER staff, it was obvious Robert was special. Says Giller: “When he walked around the office, he was the most impressive figure you could imagine. He was the kind of guy who would take the wind out of the room with his presence. I was in awe of him.”
The man as mentor
Having proven extremely successful at making money from US real estate, Robert saw Europe was having the same economic problems as the US. Europe was lagging the US by about two years, and the banks there were just starting to develop large amounts of nonperforming loans. By his calculations, Europe could be in an RTC-like situation, so he made sure his firm was one of the first ones on the beach, if not the first, to take advantage. In order to do so, Robert travelled around Europe extensively, taking Giller with him.
At the time, Giller thought of himself as the ‘rising star’ of the company and felt sure Robert must know all about him. However, the wind was about to be taken out of the sails of the young professional as he met Robert at JFK airport for their trip around Europe. Feeling very nervous, Giller spotted Robert at the airport and bounded over to greet him. Much to his chagrin, Robert responded: “Oh, are you Jeff? I heard of you, but I thought you were someone completely different.” Giller’s ego shrunk to zero. “He was larger than life and had no idea who I was!” he reflects.
The trip around Europe showed the young Giller the energy and connections his boss possessed, as well as his penchant for good living. He shadowed Robert as they flew first class, stayed at the best hotels, ate in the best restaurants and dined with heads of banks, and even heads of state. However, it seems Robert wasn’t too keen for his employees to always share the same things.
One evening waiting for cab outside the Lanesborough Hotel in London’s Knightsbridge, Robert turned to Giller and asked: “Jeff, how do you like this hotel?” Giller responded: “Joe, it is fantastic. I love it!” Robert quipped back: “Well, enjoy it because, once you start coming over here on business trips, you are never going to stay at a place like this.”
Giller once had the chance to ask Robert what drove him to success. The answer he got is perhaps the closest one can get to ever finding out what motivated Robert to create such a successful business that spawned an industry and so many senior professionals working in it today. He responded: “A burning desire to get out of the lower middle class.” According to Giller, there is no reason to suppose this to be anything other than a truthful answer, as it was said quickly and in all seriousness.
Of course, that motivation doesn’t quite explain Robert’s extraordinary generosity. Indeed, he became as famous for his giving of time and money, especially to the charities dealing with children’s education and healthcare, as he did for his business acumen. One report suggests he raised close to $1 billion for such causes, including once donating $25 million to a DC children’s hospital for a new surgical centre.
Robert’s most famous charitable effort was his legendary Fight Night event. The first such event was held at the Washington Hilton Hotel and Towers in 1990. Former associate Leary was there, and he recalls it caused quite a stir.
“It was black-tie, and the women were horrified at the whole concept of scantily-clad women holding up the round signs in the ring,” Leary says. “However, it was so successful it became one of the great things to go to in Washington DC real estate. Joe was simply a very generous guy. He thought big on both the real estate side and on the charitable side.”
The future of JER
While the legacy of Robert’s giving is undeniable, the legacy of JER Partners is less clear. The McLean, Virginia firm is struggling after having become overly aggressive in the run-up to the global financial crisis, and the irony is that a firm with its genesis in other people’s workouts has been spending much of its time in recent years working out its own investments.
JER Partners is in the process of transferring management of its European business to LaSalle Investment Management, and nowadays is concentrating on a much smaller footprint – namely managing its US assets. Meanwhile, on the personnel front, chief executive officer Barden Gale left the firm at the end of 2011. That said, it still employs some of the old guard that started out with JER in 1991, including Daniel Ward and Keith Belcher, and they continue to steer the firm.
One boss of a competing US real estate business says the future of JER Partners is hard to determine. “With Joe passing away and his most recent successor leaving, it is hard to see what they do other than manage out their existing US funds and then turn off the lights.”
That may be harsh, or it may turn out to be true. Nevertheless, whatever happens to JER, its founder has cemented his place in the annals of private equity real estate forever. Rest in peace Joseph E. Robert.