FEATURE: In bloom

Thriving in today’s fundraising climate has proven difficult for many private equity real estate firms, and no one has been more aware of this difficulty than new fund managers. When launching new funds and hoping for a long-term career, it is tough for emerging managers to survive, let alone to prosper. Still, the emerging managers included in this year’s list of ‘firms to watch’ stand a good chance of blossoming into something more. 

One source of hope this year amid a relatively harsh capital-raising climate has been the emerging manager programs run by several large US pension plans. The growing popularity of these programs has shown that, despite the obstacles facing newcomers, institutional investors have enough confidence in certain early players to give them a shot at success. These investors say they see the value of fostering and investing in individuals and teams with proven track records who are forging their own path.
For example, in January, the Teacher Retirement System of Texas made commitments to three funds as part of its real estate emerging manager program. The firms chosen for those investments included Dallas-based TriGate Capital, which we highlighted this year as a firm to watch, as well as New York-based Savanna Real Estate Partners, which made our list in 2011.
Meanwhile, the Los Angeles County Employees Retirement Association (LACERA) showed its increased faith in up-and-coming firms when it changed the limit of the capital that may be managed by any single emerging manager in its program from a fixed dollar amount to a percent of its real estate allocation. News in June that LACERA expects to allocate an additional $1.2 billion to real estate for fiscal year 2013-2014 introduced the opportunity for more emerging manager investments. 
Also over the summer, the California Public Employees’ Retirement System made the first investments for its new $200 million real estate emerging manager program. Through the Canyon Catalyst Fund, a joint venture with Canyon Capital Realty Advisors, the $266 billion pension system allocated capital to four early-stage managers. 
Within these programs and throughout the industry, there are varied definitions of what makes an emerging manager. For the purposes of this feature, PERE has defined an emerging manager as a relatively new player to the private equity real estate space, but not necessarily the greater real estate industry. The firm’s founders or key managers typically have established a track record at larger firms and now are looking to succeed on their own, or they can be firms that have been around for quite a while but only recently have sought institutional capital. In terms of capital, the firms included generally have less than $2 billion in total assets under management and are targeting a fundraising of around $500 million or less from a first, second or third institutional real estate fund.
The following pages profile 10 private equity real estate firms around the globe that are on the verge of or just beginning to experience success with their strategy among fund investors. With continued success and a little bit of luck, some of these firms may even grow into enduring players. 
Activum SG Capital Management 
Headquarters: Jersey, UK
Founded: 2007
Key team members:Saul Goldstein (founder) and Melissa Pelz (head of investor relations)
Strategy: Mid-market opportunistic real estate in Germany
Activum SG Capital Management, led by founder Saul Goldstein, is emerging as a leading player in Germany’s middle market. Established in 2007, the Jersey-based firm concentrates on the opportunistic segment, taking a repositioning approach to its investments.
As one market observer put it, Activum’s first fund was like a ‘proof of concept’, allowing investors to see how things might develop. As a result, that fund raised a modest €56 million during the extremely tough environment of 2008.
Since then, however, things have developed quite well. As more investors became aware of the firm and as results started to come through, Activum was able to raise considerably more equity for its second fund. Indeed, Activum SG Fund II leapt in size to €249 million in commitments and was closed at the end of 2011. 
Judging by the investments Activum has made so far, its strategy has covered four broad categories: office repositioning, special situations, large-scale residential development and high octane lending to distressed developers. According to its website, its first realized investment came in March 2012, when it sold the Grammophon office in Hannover and produced a 30 percent net IRR and 1.7x equity multiple. Activum ended up making six investments on behalf of Fund I in such markets as Hanover, Berlin, Frankfurt, Munich and Cologne, and Fund II has made eight investments to date in similar cities. 
Now, sources say Activum is back on the fundraising trail with Fund III and is set to end its capital-raising efforts next year with around €325 million in commitments. As one person says, “A number of investors have been tracking them as they are one of the few standout firms in the German market.”
Baring Private Equity Asia  
Headquarters: Hong Kong
Founded: 2011
Headed by: Mark Fogle 
Strategy: pan-Asia opportunistic
Baring Private Equity Asia is hardly a new franchise, but its maiden real estate opportunity fund has attracted $200 million in commitments so far, underlining it as an emerging manager to watch. Since Mark Fogle was brought aboard by founder Jean Salata to build a real estate business in the summer of 2011, the ex-RREEF and AIG Real Estate executive has busied himself building a bench of select ex-colleagues from his former employers. The arrival of Malcolm Lai, a development specialist, from Invesco Real Estate in October represents the latest of 15 real estate-focused additions, including Charles Lam and Joji Thomas from Pramerica Real Estate Investors and Peter Manga from Deutsche Bank.
Baring’s inclusion in PERE’s list of emerging managers to watch is not due to this hiring spree, however. Nor is it due to the firm’s numerous property deals. In fact, a bid made this summer for a large Philippines office portfolio, which was in exclusivity for a period, would have been the real estate platform’s first transaction were it not for a trumping offer by a local conglomerate. Instead, its inclusion comes because it already has managed a feat that numerous first-time fund managers since the start of the global financial crisis have not – namely, a comprehensive first closing for its maiden opportunity fund. 
Showcasing the successes within the track records of his freshly-assembled team, Fogle has convinced institutional investors to commit at least the first $200 million of the $500 million capital-raising target set for Baring’s maiden pan-Asia real estate fund. The capital will be deployed in 
mature and emerging markets, including China, India, Japan, Australia and Southeast Asia.
Whether Baring’s real estate platform reaches the popularity among investors of its private 
equity business – its fifth private equity fund hit its hard cap at $2.5 billion during a dour time for private capital-raising generally – will be seen in the months to come. Much, of course, depends on the deals that Fogle’s team sources and transacts. Nonetheless, it needs the capital in the first place and, thanks to early faith from investors, that part of the equation is well on its way to being accomplished, giving the platform a rare opportunity to ‘emerge’.
Bridge Investment Group Partners 
Headquarters: Salt Lake City
Founded: 1991
Founders: Bob Morse, Don Hartman, Dean Allara, Dan Stanger, Chris Young and Jonathan Slager
Strategy: Value-added multifamily and office assets in the southwestern, western and southeastern US
It takes guts for an emerging manager to more than quadruple its capital-raising target in the follow-up to its debut fund, but that’s precisely what Bridge Investment Group Partners did when it set out to raise its second real estate opportunity fund. The Salt Lake City -based firm launched Real Estate Opportunity Capital (ROC) Fund II in April 2012 with a $500 million hard cap – a major leap from its initial offering, which attracted a total of $125 million in equity in 2010. 
According to Dean Allara, Bridge’s chief operating officer, the significant increase had to do with the firm’s evolution from an operating partner with private equity firms to an independent institutional fund manager. “We were still doing capital allocator deals along with fund deals in Fund I,” he explains. “In Fund II, we wanted to do exclusively fund deals, so that’s why we wanted to raise a larger amount of capital.”
Despite a challenging fundraising environment, Bridge was successful in aiming high, exceeding the fund’s hard cap and ultimately raising $595.5 million by its final close in October. The firm’s investment strategy of buying properties throughout the US, excluding those in the Northeast, at low prices and improving them to add value has done well by investors thus far: Fund I was generating net returns of approximately 20 percent as of press time. Meanwhile, Bridge continues to actively deploy capital and has invested more than 70 percent of Fund II. 
Bridge is led by chairman Robert Morse, who was head of Citigroup’s Asia institutional clients group from 2004 to 2008, and chief executive Donaldson Hartman, who was Asia-Pacific regional director of Citigroup’s financial institutions group from 1994 to 2002. Those credentials abroad may have helped in the firm’s fundraising: about 15 percent of the equity haul for ROC Fund II, for example, came from outside the US.
As Bridge has evolved, so has the makeup of its investor base. Fund I’s limited partners consisted of 75 percent high-net-worth individuals and 25 percent institutional investors. However, the breakdown for Fund II was nearly the reverse: 60 percent institutions and 40 percent high-net-worth.
Cypress Equities Real Estate Investment Management 
Headquarters: Dallas
Founded: 1995
Founder: Chris Maguire
Strategy: Value-added retail investments in the US
A first-time fund manager that hits its fundraising target within a year’s timeframe is something of a rarity. It’s rarer still when such a firm reaches its hard cap within that period. So the fact that, as of press time, Cypress Equities Real Estate Investment Management was on track to achieve both milestones on behalf of its first institutional real estate fund is impressive.
After launching Cypress Acquisition Partners Retail Fund (CAPRF) at the beginning of the year, the Dallas-based investment firm raised $195.56 million during the fund’s first close in May, according to a filing with the US Securities and 
Exchange Commission. As PERE was going to press, Cypress Equities was said to have achieved its $300 million target for the fund and was expected to hold a final close at or near its hard cap of $400 million by the beginning of 2014. With CAPRF, the firm will be focused on the acquisition and reconfiguration of multi-tenanted retail properties in the US over a relatively short-term holding period.
Despite being a new fund manager with just $150 million in assets under management as of April, Cypress Equities is no real estate novice. The firm was established in 1995, originally as a retail 
development platform with a build-to-suit strategy. Its private equity real estate track record dates back to 2003, when it formed a $30 million acquisition fund with equity from high-net-worth individuals, as well as a $150 million development venture with The Carlyle Group. Since then, the firm also has served as the operating partner for a number of other major sponsors.
In addition to its operator track record, Cypress Equities benefits from its affiliation with retail real estate consulting and brokerage firm SRS Real Estate Partners, which helps it to source potential investments. Both of Cypress Equities’ senior partners came from SRS, with founder Chris Maguire co-establishing the broker in 1986 with former Dallas Cowboys quarterback Roger Staubach.
Encore Capital Management 
Headquarters: San Francisco
Founded: 2009
Founders: Art Falcone and Tony Avila
Strategy: Opportunistic residential properties in California and Florida
Encore Capital Management distinguishes its real estate strategy through its managing principals’ investment experience and its capability to conduct all land development and construction in-house. Despite a volatile fundraising climate, Encore began marketing its first opportunistic fund in 2010 with the aim to invest in distressed residential real estate, including entitled land, finished lots, master-planned communities, multifamily and mixed-use properties. By April 2011, the San Francisco-based real estate investment firm closed on $160 million in equity for Encore Housing Opportunity Fund I and deployed the capital in properties in Florida, California and Texas within seven months.  Encore has now realized seven of the 17 investments in Fund I, returning some 38 percent to investors so far and achieving an IRR of more than 40 percent.
Encore’s second offering, Encore Housing Opportunity Fund II, raised capital faster than its first vehicle, bringing in 
$342 million plus an additional $105 million through sidecar vehicles from European, Latin American and American foundations, insurance companies and family offices between July 2012 and this summer. Fund II is pursuing the same strategy as its first fund with an expanded geographic scope that includes Arizona and Washington.
Encore’s story began when co-founder and entrepreneur Art Falcone, sensing the impending housing market crash, sold the operations and land holdings of his Florida-based homebuilding company Transeastern Properties for $1.6 billion in 2005. Advising on the deal was Tony Avila, an investment banker who founded and led the homebuilding investment banking team at JMP Securities. After forming Encore in 2009, Avila and Falcone called upon the institutional money management prowess of Bill Powers, former fixed-income portfolio manager and managing director at PIMCO.
Currently, Encore has deployed about $115 million of the capital from Fund II, with another 
$200 million of future investments in contract and a plan to invest the balance of the equity within two years. The firm’s next project is the launch of a private REIT focusing on multifamily development.
Goddard Investment Group 
Headquarters: Atlanta
Founded: 2000
Founder: Robert Goddard III
Strategy: Value-added office properties in Atlanta, Dallas, Houston, Denver and Miami
In the early 1980s, Robert Goddard III formed the Atlanta real estate services firm NAI Brennan Goddard. By 2000, however, the chairman and chief executive had decided to concentrate his efforts on the investment side of the business. He sold the services portion of NAI Brennan Goddard and formed Goddard Investment Group based on a simple strategy: buying value-added office properties throughout the Sunbelt region, particularly those in Atlanta, Dallas, Houston, Denver and Miami.
Goddard Investment Group has kept a low profile since its entry into the private real estate investing world. After years of doing direct deals with a European family office, the investment firm got its first fund off the ground in early 2012. Holding a first close on $60 million in mid-2012, it completed fundraising one year after the vehicle’s launch, closing on $190 million in January 2013. 
The primary focus during fundraising was to form long-term relationships with like-minded investors, and the office-focused fund brought in investments from seven educational and medical institutions and endowments. In fact, Goddard Investment Group closed Fund I even though a few prospective investors asked for more time to complete due diligence on commitments that would have put the fund well over its informal $200 million target.
“Our main objective was to find the right partners for us, so we got to that point and thought we were in good shape,” Dave Hardman, president of Goddard, tells PERE. “It allowed us to focus entirely on our investments.” 
Goddard Investment Group’s simple investment philosophy translates to its equally modest public profile. Despite its 13-year history, the firm still does not have a website and does not have plans to start one. Future plans include investing on behalf of Fund I and possibly launching another fund in the coming years. The first offering has deployed approximately 
$100 million of its capital to date, recently acquiring Overlook III, a 440,000-square-foot office property in Atlanta.
Kildare Partners 
Headquarters: London
Founded: 2013
Key team members: Ellis Short (founder), Rupert Fraser (partner) and Jay McLennan (partner) 
Strategy: pan-European opportunistic, including nonperforming loans
Kildare Partners is the start-up real estate investment firm launched by Lone Star Funds veteran Ellis Short, who is better known by UK newspapers as the owner of the Sunderland Football Club of the English Premier League. Ellis set up Kildare earlier this year to target opportunistic, controlling investments in European distressed real estate and, although there has been no official word on fundraising, PERE previously reported that the firm is aiming to raise in excess of $1 billion via Kildare Partners Fund I.
Short began his career in 1983 at General Electric, where he spent time in various divisions including its pension plan and its real estate investment group. However, his name became best known for real estate while at Dallas-based Lone Star, where he worked between 1994 and 2007 in such roles as president and a member of the investment committee. In 1996, he relocated to Japan as head of Asia operations and oversaw some $10 billion of deals in Japan, South Korea, Taiwan and Indonesia. Although he left the firm in 2007, he continued to manage the politically sensitive $1.2 billion investment that Lone Star made in the Korea Exchange Bank until last year.
Unsurprisingly, Short has assembled a team for Kildare that consists in good part of former Lone Star professionals. They include partner and senior managing director Jay McLennan, who was an acquisitions underwriter and asset manager at Lone Star and its workout group, Hudson Advisors, and also led operations in Singapore and Taiwan. Louis Paletta is another former Lone Star professional, having filled various roles including senior managing director of investor relations.
Judging by the firm’s website, Short has designated himself as chief investment officer of Kildare. Although the firm hasn’t announced a fund, one report last month suggested it has raised around $300 million so far and another suggested its first deal is a 47,853-square-foot office in Mayfair, west London.
Meadow Partners 
Headquarters: New York
Founded: 2009
Founder: Jeffrey Kaplan
Strategy: Opportunistic purchases of income-producing real estate in New York and London
When Jeffrey Kaplan, Andrew McDaniel and Timothy Yantz launched Meadow Partners, they had a common goal in mind: to get back into the real estate business. The three principals formerly worked together at Westbrook Partners—Kaplan as a managing principal and co-chairman of the investment committee, McDaniel as director of the London office and Yantz as director of the San Francisco office—but the trio wanted a change from Westbrook’s multi-billion dollar allocator model. 
As a member of Hawkeye Partners’ Scout Fund I, Meadow had the opportunity to concentrate on a smaller, niche strategy. Focusing exclusively on New York and London, the firm favors small office, retail and apartment deals in the $15 million to $25 million range. “We like to be out kicking tires,” says Kaplan. “The partners really can know everything about every deal.” The firm’s first vehicle raised $235 million, invested in 11 projects totaling $750 million and has realized seven of its investments so far. 
For its second fund, launched in July 2012, Meadow targeted the same investment strategy, with the addition of hotel and industrial assets. After a difficult start, Meadow Real Estate Fund II saw increased interest towards the end of the fundraising period, bringing in a total of $320 million in equity from US pensions and endowments like the North Carolina Retirement System and the University of Texas Investment Management. Thus far, Fund II is approximately 60 percent invested.
Kaplan says another fund is likely on the horizon for 2014 with a $400 million to $500 million target, and he expects the firm to launch funds of that size every two years. Although Meadow formerly worked with operating partners, the firm has begun taking on more responsibility in-house as its team has grown. The only change in fund strategy that Kaplan foresees in a third fund is the addition of more geographical markets, although New York and London will remain the preferred cities. All three founders have lived in both cities before, providing them with both the network and the know-how to invest wisely in what Kaplan calls “the two most-liquid markets in the world.”
RMB Westport 
Headquarters: Johannesburg 
Founded: 2008
Headed by: Michael O’Malley and Dale Ramsden
Strategy: sub-Saharan Africa development
It had to put some meaningful skin in the game, but RMB Westport, the joint venture real estate investment business of Johannesburg-based Rand Merchant Bank and Westport Property Group, has proved a popular choice among investors looking to make early forays into African real estate. 
As PERE revealed last year, RMB Westport – led by Michael O’Malley and Dale Ramsden – managed to attract rare commitments from one of Canada’s largest pension plans and one of Abu Dhabi’s sovereign wealth funds on its way to a $250 million final closing. Those were just two of the 10 investors to back the first-time fund manager as it seeks to do its part in building some of Africa’s first institutional-grade real estate. 
Even considering the $50 million invested by Rand Merchant Bank and the platform’s senior management, hauling that much capital into an initial fund – let alone one focused on African development – has demonstrated that institutions have been willing to engage with first-time fund managers that can offer an alternative investment in the world’s frontier markets. Indeed, investors evidently were impressed by RMB Westport’s strategy of committing between $15 million and $40 million into projects in sub-Saharan Africa across a range of entry points, including land acquisitions and debt positions. 
Investors also were likely impressed by RMB Westport’s pilot investment in the 243,000-square-foot Ikeja City Mall shopping center in Lagos, the largest in the city. The firm acquired a 20 percent stake in December 2009 with a view to instantly exposing the fund’s investors to a mall benefiting from a catchment population of four million, many of whom are growing increasingly affluent. A pre-identified pipeline of deals – valued at more than $350 million and expected to generate IRRs of 30 percent and a 2x equity multiple or more – has further whet their appetite.
It is understood that a second opportunity fund already is on the agenda for RMB Westport’s annual general meeting at the end of this year, and early talk suggests the equity total could surpass the firm’s maiden effort.
TriGate Capital 
Headquarters: Dallas
Founded: 2007
Managing members: Jay Henry, Jon Pettee and Jeff Yarckin 
Strategy: Opportunistic investments in distressed debt and existing properties in the southeastern US 
TriGate Capital broke into the investment management arena in 2008 with a fund of one, partnering with one of the country’s largest pension plans, the California State Teachers’ Retirement System (CalSTRS). The fund closed on $120 million in equity 
($110 million from CalSTRS and $10 million from TriGate) and put the capital to work through a joint venture structure called TriGate Property Partners, investing in distressed real estate opportunities. 
TriGate launched its initial commingled effort in November 2011, holding its first close in July 2012. One year later, the Dallas-based firm closed TriGate Property Partners II on $326 million in equity, surpassing its $300 million equity target with commitments from big-name pension plans including CalSTRS, the San Francisco Employees’ Retirement System, the Teacher Retirement System of Texas and the Ohio Police and Fire Pension System.
TriGate’s success comes in part from the pedigree of its managing members: Jay Henry, Jon Pettee and Jeff Yarckin. Founder and managing partner Henry spent three years running Morgan Stanley’s investment group in Europe and currently serves as chief executive of JAH & Company, a family-controlled developer and operator of neighborhood retail properties. Meanwhile, Pettee spent seven years directing all operations, asset management and workout activities for NCS, a joint venture controlled by Fortress Investment Group and Goldman Sachs. Yarckin, the former president and chief executive of ORIX Capital Markets, spent 10 years with Lone Star Funds as a founding partner. 
Through Fund II, TriGate is pursuing investments in distressed debt and existing properties, with the goal of value creation through the recapitalization and repositioning of assets. The firm focuses its activities in Florida, Georgia, Texas, Arizona, Colorado and California and has made past investments in suburban Boston and Chicago. Through Fund II, the firm is looking to make investments between $5 million and $20 million and has invested $63 million of the fund’s capital thus far.