AMERICAS NEWS: Expand and contrast

Impending banking regulations appear to have served as an unexpected boon to Chicago-based real estate investment advisor Hunt Investment Management. After all, if it weren’t for restrictions on banks investing in risky assets, such as private equity and real estate funds, State Street Global Advisors (SSgA) may not have decided to sell its private real estate business to Hunt.

Indeed, SSgA’s recent sale of The Tuckerman Group’s $1.2 billion business to Hunt Investment Management is one case where a financial institution has opted to unload its private real estate fund business before having to deal with potentially prohibitive regulatory restrictions. While some financial institutions like Goldman Sachs are seeking refuge for their private funds in the exemptions found in Sections 3(c)(1) and 3(c)(7) of the Investment Advisers Act, others like the investment management arm of Boston-based State Street are bidding adieu to their private fund businesses (although SSgA is still holding onto its REIT businesses).

Upon the sale of its majority stake in Tuckerman (the firm’s senior management owns a minority stake) last month, SSgA said in a statement that it “chose to transition the private equity real estate business to Hunt Investment Management due to regulatory restrictions on investments in certain private fund offerings.” Although a spokeswoman for SSgA declined to specify what these ‘regulatory restrictions’ are or if Tuckerman is the firm’s sole private equity real estate business, the decision comes ahead of the publication of a final version of the Volcker Rule, which would curtail SSgA’s ownership of such private investment businesses.

Hunt, however, isn’t concerned about such possible restrictions as it doesn’t operate under the purview of the Volcker Rule or similar banking regulations. “Regulatory restrictions are not something that Hunt is worried about,” said Glen Weisberg, former chief executive of Tuckerman and now executive vice president of Hunt Investment Management. “The Dodd-Frank Act doesn’t affect them; they are not a bank holding company.”

In fact, the Tuckerman acquisition will enable Hunt Investment Management to expand its private equity real estate business in more ways than one. Not only does the deal help the firm grow physically — the purchase of Tuckerman augments its presence in Chicago while establishing a presence in New York — it also enables Hunt to enter into the opportunistic investment business.

“The Tuckerman Group historically has been more on the opportunistic side of deals, while we’ve been more of a value-added player,” said Douglas Tibbetts, chief executive officer of Hunt Investment Management. He confirmed that this transaction will allow Hunt to enter into opportunistic investments with third-party capital.

In addition to Tuckerman’s contracts, 11 staff members and 7,100 apartment units, Hunt Investment Management has acquired three separate accounts and three commingled funds from the multifamily investment specialist. It also has gained 30 new clients as a result of the deal.

“Tuckerman has a nice business, and Glen and his team are very good at what they do,” Tibbetts added. “We thought it was a unique opportunity to grow our platform.”

Weisberg told PERE: “When we were looking for a new partner, we wanted a firm that would have a platform that would appeal to our clients. Hunt Investment Management is a specialist in multifamily, so it was a nice meshing of investment strategies. In addition, Hunt is retaining all senior management and offices, and that was important to us as well.”

Neither Weisberg nor Tibbetts could confirm that Tuckerman was State Street’s sole private real estate business. However, SSgA selling the platform is clearly a sign that it is skittish about dealing with banking regulations such as those in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Furthermore, this deal serve as a reminder of the dwindling number of banks and other similar financial institutions participating in the private real estate market. Indeed, the number of banks and financial institutions that are active in the private equity real estate space is small enough as it is. With SSgA selling Tuckerman, it appears to have gotten even smaller.