Fully cross-border operating partners are hard to come by in the real estate industry. The reason being is that to be an effective operating partner one needs such a detailed knowledge of the local market it is rare to have such expertise in more than one jurisdiction. In fact, it is often why operating partners are relatively small businesses.
One group who does not subscribe to the outsourcing model is M7 Real Estate, the investment manager specialized in high yielding multi-let properties. The London-based firm, probably best known as the operating partner in joint ventures with firms such as Starwood Capital Group and Oaktree Capital Management, has recently changed its internal structure bringing more operating expertise in-house.
The firm has moved away from its old model, which saw it use asset management partnerships in different countries throughout Europe, each with a country-focused operating platform, by integrating these platforms into the M7 mother ship. It has done so by exchanging shares in the overseas entities for shares in M7. The executives, who now head M7’s European offices as managing directors, have become shareholders in the London-headquartered parent company.
“We are conscious that as M7 grows as a business it is vitally important that each individual country head is not solely concerned with just their own platform and actually takes an active interest in the bigger picture at M7,” said Richard Croft, M7’s chief executive.
Operating partners, especially those with offices across borders, can never be completely confident that all geographies or sectors will see equal action. The concern is that certain geographies or individuals working on certain sectors may lose interest if they are not being kept busy enough, and without work compensation incentives suffer. Others talking to PERE have discussed this concern with in house operating partners, namely that when capital is shifted from one geography to another it is too difficult to keep every local team invested in the firm as a whole. Again, M7 has made a move to address concerns that its staff would not be kept busy enough, say if one of its large joint venture partners decided to sell everything and it would have too many people on the payroll for the assets it was managing. M7 is also a fund manager in its own right having raised its second fund back in December as well as an asset manager with staff working across business lines and there is plenty of work involved in being both.
“I preach risk diversification in the acquisition of assets, and it would seem silly to ignore that as a strategy for our own business,” said Croft.