“Muscular,” declared the barely twentysomething creative as we sat uncomfortably in the design agency‘s uber-trendy meeting room. “In the eyes of your market, you own these four letters so we can make the look strong, emphatic.” He paused for effect: “Muscular.” He clicked a mouse and the four characters that elicited a range of pronunciations from us and our readers (are you a perry, pear, pee-ee-are-ee or peray person?) filled a screen on one wall. Four big, white – and yes – muscular letters on the familiar terracotta background stared back at us.
We had created PEI the company in late 2001 in a management buyout from international financial media group Euromoney Institutional Investor. Five people in a sub-let office opposite St Paul’s Cathedral in London busied themselves feeding news onto a website and producing a monthly magazine called Private Equity International.
Already some heavyweight general partner groups had emerged which were raising billions of private equity dollars, and names such as KKR, Carlyle and – of course – Blackstone were taking up meaningful column inches in our private equity coverage too. And although these firms had their roots in North America we felt strongly that what they did and how they did it would (and should) be repeated by others elsewhere. This was a style of investing that required local knowledge and expertise combined with the disciplines and resources that a sophisticated financial industry could provide. Private equity was going to be global.
And so it proved, with Private Equity International tracking the industry’s ever-increasing reach, impact and influence throughout. But that is only half of the story (at most), both for us as an alternative asset information provider and for the participants in private equity itself, because a gorilla had climbed into the rowing boat.
In 2004, research told us that 90 funds based in North America raised nearly $29 billion of new capital dedicated to invest opportunistically in real estate assets. Using the classic blind-pool, limited and general partner fund structure, these were funds that sat outside the orthodoxies of listed property stocks or REITs. They had little appetite to wrap a fund around a tidy cluster of fully-occupied, grade A offices sat in the CBD of a capital city. Designed to acquire real estate that needed to be worked on to release extra value, these were vehicles raised by practitioners who wanted to take their investors on a decade-long journey to find exceptional returns. They thought and acted like private equity people – although most would say they were real estate people first.
Closer to home, we were finding that a growing number of the people we talked to about private equity were dropping real estate into the conversation too. Institutional investors were announcing their appetite for a type of real estate investment that went beyond the traditional buying and holding of mainstream assets, one that required skill and judgment from professionals with the right kind of track record. Likewise fund managers could see the chance to occupy a distinct segment of a massive global industry. Whilst the traditional real estate investment groups were happy to propose core and core-plus strategies to their investors, the firms we were talking to wanted to explore how real estate could yield better than superior returns and deliver the keenly-sought alpha so many investors needed.
There was money to be raised and deployed, fees to harvest, carried interest to look forward to. The name for this activity, this distinct style of creative real estate investment, seemed obvious to us: this was private equity investing in real estate, or in other words, private equity real estate.
It’s also worth noting that the people and firms we encountered as we started to explore how best to start covering private equity real estate quickly convinced us that this was going to be a fun community to cover. Just as private equity was populated by many owner/driver firms, so opportunistic real estate had similarly tightly-knit, energetic, sometimes (who said often?) idiosyncratic teams headed by big personalities.
So in April 2005 we put to press the inaugural issue of Private Equity Real Estate, a magazine we boldly described (ahem) as “The global journal for opportunity investing in real estate”. Ignoring this real estate induced chutzpah, a review of that inaugural cover will likely elicit some smiles today. In “Beware the Bonanza” we warned that a hot fundraising market “spells both opportunity and trouble…” and in “Home Sweet Home” we discussed why Germany’s residential market was attracting so many enthusiastic buyers. Who said real estate was cyclical?
At the same time our journalists were busy posting daily news up on to PEREnews.com. We were following the same principle we had adopted with Private Equity International, using the monthly magazine for in-depth interviews, news analysis and wide-ranging features whilst delivering timely news coverage via the website, including daily email news digests and a weekly round-up headed by a topical opinion piece from one of the edit team. Notably too, we could see that the readership for the site was multiplying rapidly, with breaking news stories helping to attract new users as they were forwarded within firms and beyond. Years later Blackstone’s Jon Gray commented to us that it was the forwarded news alerts from his LPs that first introduced him to the site.
Central to this has been the team of journalists who have worked on the publication through this period, whether in London, New York or Hong Kong. Although some came with their real estate journalism pedigree already proven, others were taken on not because of such stalwart credentials but because we thought that they, like the asset class itself, showed a free-thinking, sometimes iconoclastic, approach to what they did and what they wrote. The fact that some have gone on to be Hollywood scriptwriters, hardcore Washington political reporters or returned to academia may confirm what we identified when we hired them. And notable too are the members of PERE’s editorial team who have continued to help drive the news agenda for the industry: a review of the masthead will prompt many of you to recognize these people who make a point of talking to the market day-in and day-out.
It is this dialogue with the market that has been a key driver behind the title’s growth. Another has been the extraordinary growth in private equity real estate capital raised and the number of institutions active within it. Remember that $29 billion annual total for opportunistic, closed-end funds raised in 2004? The same figure was raised in Q1 of 2015. And half of it was in one fund: Blackstone’s Real Estate Partners VIII, the largest real estate fund ever to close. Or, for us, consider how many users registered for our website in its first 12 months: 6,791. How many registered users do we have today? 38,000 and rising. Muscular indeed.