AMERICAS NEWS: Lighting the Candle

A former Morgan Stanley Alternative Investment Partners (AIP) executive is back in the private equity real estate game with a newly formed firm that is adopting a dual strategy to take advantage of dislocation in the property market. 

Joseph Stecher, who stepped down as chief investment officer of the real estate fund of funds business at Morgan Stanley AIP earlier this year, has launched Candlewood to make secondary investments and co-investments. 

According to Stecher, his new firm was named after Candlewood Lake in Connecticut – a name he had to come up with quickly in able to register for the Pension Real Estate Association’s autumn conference, so he borrowed the name from the view of the lake he had at the time.

In terms of its secondaries strategy, the firm has already formed a separate account for a client to seek out secondary investments across all real estate asset types in the US. Although neither the investor nor the separate account’s size were disclosed, through the mandate, Candlewood is seeking secondary US investments that are at least $50 million or larger.

Currently, the New York-based firm already is looking at one investment on behalf of the separate account and is retrieving information on two additional potential deals. Ultimately, this secondaries strategy is tilted more towards larger deals, he explained. In addition, the firm is looking for fund interests with “high-quality managers” that have not been broadly marketed. “So no auctions,” said Stecher. 

While the secondaries investment plan is slanted toward the larger funds, Candlewood’s other plan is geared more towards smaller deals. Through Candlewood’s second strategy, the firm is looking to co-invest in individual US properties alongside small- to mid-sized fund managers. Primarily, Stecher’s firm is looking to invest with GPs with good managerial skills that are short of the capital required to make a deal.

“We look at great funds that have missed their fundraising target, so they have less capital than they need to make a particular investment,” he said. “So what Candlewood would do is come in with half the equity required to buy that building.” Stecher added that Candlewood was looking to co-invest anywhere between $10 million and $35 million in each investment. 

In some respects he is doing what he has done throughout his career – building a new business. After all, he joined Morgan Stanley AIP in New York in 2008 to help launch the firm’s real estate fund of funds business. Throughout his time at the firm, he oversaw that business, which included the Morgan Stanley AIP Falconer fund of funds and the Morgan Stanley AIP Phoenix Global Real Estate Secondaries fund, which closed on $370 million in commitments in 2010, exceeding its initial $250 million target.

Prior to joining Morgan Stanley, Stecher worked as a managing director at Goldman Sachs. There, he oversaw a global programme of real estate fund of funds and separate accounts for institutions and high-net-worth individuals.

“I’m having a blast doing this,” added Stecher. “I’m finding great deals with great GPs.”