Financial services giant Cantor Fitzgerald made its first foray in the private real estate funds business last month. The New York-based firm took over RREP Recovery Partners, a debt business that was part of Ranieri Real Estate Partners initially built up during the banking crisis in order to take advantage of widespread dislocation in the capital markets.
Under new ownership, the platform run by former Deutsche Bank global head of Commercial Real Estate (CRE) Jon Vaccaro will now come under the umbrella of Cantor Fitzgerald’s latest subsidiary, Cantor Real Estate. The acquisition marks the second move since 2010 for the well-known Deutsche Bank professional who oversaw growth of its Commercial Real Estate division from $3 billion in 1997 to more than $40 billion at its peak. His team worked on some prominent transactions during his 13 years, including some ill-fated ones towards the end such as the $3.9 billion development of the Cosmopolitan Resort Casino in Las Vegas and developer Harry Macklowe’s $7 billion acquisition of a Manhattan skyscraper portfolio.
When Vaccaro left the bank, he teamed up with Ranieri Partners founder and chairman, Lewis Ranieri, to form RREP. The combination of Vaccaro and Ranieri, who is widely referred to as the godfather of mortgage finance, caused a stir in the industry but Vaccaro described the new firm as “well-positioned” to approach the “tumultuous time in commercial real estate” in a statement announcing the appointment of former Deutsche CRE colleague Eric Schwartz as president of RREP.
However, the track record of Deutsche Bank’s team during the downturn prompted concern among some potential limited partners for the RREP Recovery Partners fund, noted one investor who reviewed the vehicle in 2011 and chose not to commit. Despite initial reports that the fund was targeting $500 million, it only managed to raise $200 million by its final close in April 2013. The combined expertise of Ranieri and Vaccaro seemed like home run at the start, but the fund did not meet Ranieri’s initial expectations, noted a source familiar with the situation. Ranieri declined to comment to PERE.
In the wake of the recent sale, Ranieri said in a statement: “We built RREP Recovery Partners around the dislocation during the banking crisis and are proud of what we were able to accomplish. As the business continues to grow, a transition to a larger scale platform like Cantor Fitzgerald’s is a natural evolution.”
At Cantor Real Estate, both Vaccaro and Schwartz will serve as co-chief executive officers, and the fund will be renamed Resolution Recovery Partners Manager. The opportunity to work with a larger company with more resources at its disposal was the main motivation behind the move to Cantor Fitzgerald, according to Vaccaro. “The initial attraction for us was Cantor’s desire to build an investment management business. All the various affiliates and entities in the Cantor family provide opportunities to find unique situations to invest in,” Vaccaro said. “When you think about raising money and finding good investments for your clients, having all these other engines around the firm that can generate opportunities is really interesting.”
The formation of Cantor Real Estate is part of the firm’s larger plan to break into the real estate investment management business, which it kicked off in March 2013 with the hire of former BlackRock executive Chris Milner to its real estate finance platform, Cantor Commercial Real Estate (CCRE), as head of investment management. CCRE plans to expand into the investment management business and possibly launch commingled funds in the future. As of now, the Resolution Recovery Partners fund is the only private real estate vehicle in Cantor Fitzgerald’s arsenal. “The acquisition of Recovery Partners is a logical continuation of Cantor’s efforts to expand our commercial real estate footprint in the market,” noted Sheryl Lee, spokesperson for Cantor Fitzgerald.
Moreover, the creation of Cantor Real Estate continues a prior relationship between RREP and Cantor. With Vaccaro at the helm, RREP purchased multifamily loan originator and servicer Deutsche Bank Berkshire Mortgage in 2011 and renamed the platform Berkeley Point Capital. In April 2014, RREP sold the Berkeley Point to Cantor’s CCRE. “We had been thinking about the move for a while, and after the sale of Berkeley Point, the choice to move the investment management business to Cantor became clear as well,” Vaccaro explained.
Milner, Vaccaro, Schwartz and Cantor Fitzgerald chairman and chief executive Howard Lutnick are key men on the Resolution Recovery Partners fund. The investors in the vehicle have been entirely supportive of the move over to Cantor, Vaccaro noted. Despite the difficulties in fundraising, returns for the vehicle have been strong thus far, bringing in more than 20 percent gross IRR, according to Vaccaro. He declined to comment on the net returns for the fund.
Although no new vehicles will be launched until the Resolution Recovery Partners fund wraps up, Cantor Real Estate is already looking to the future. The platform is considering launching a mortgage real estate investment trust (REIT) further down the line.