By Nick Weber’s own admission, Henderson Park would probably not be in existence if it were not for the ill-fated energy bets made by his former firm Mount Kellett.
In a parallel dimension, in which the approximately $3 billion of energy investments made by the New York-based investment manager had not resulted in the firm needing a bail-out, he would likely still be there plying his trade, opportunistically buying and selling real estate in Europe. A naturally low-profile individual, he would also probably be still operating snugly in the shadow of Mount Kellett’s high-profile founder and fellow Goldman Sachs alumni Mark McGoldrick.
“I don’t think I ever sat there and thought, ‘It’s time to break out on my own,’” Weber admits. “If I’m honest, it was a healthy catalyst forcing me to reflect on what I’d do next.”
In the summer of 2015, Mount Kellett agreed to a transaction with private equity giant and neighbor Fortress Investment Group, which effectively saw the latter inject $200 million of equity into its three investment vehicles in return for a ‘special limited partner’ position that brought with it co-management earning benefits.
The deal agreed between McGoldrick, nicknamed ‘Goldfinger’ from his time at the investment bank, and another former Goldman Sachs high-flyer, Fortress boss Peter Briger, effectively ring-fenced the funds’ assets from predatory bids. But it would also limit the bonuses available to Mount Kellett’s staff. Before the ink had dried on the deal, some 30 employees had gone. Weber, described by some as ‘McGoldrick’s right-hand man,’ was not among them.
“A lot of people left early. I stayed. I felt it was the right fiduciary thing to do. I decided it was my responsibility to my people, and to my investors first and foremost as they had entrusted us with their capital,” he says. “While it wasn’t financially beneficial to me, it was more about doing the right thing.”
By the time Weber did leave in September 2015, about 80 percent of Mount Kellett’s European real estate assets, over which he presided as the firm’s head of Europe, had been sold. Then, three deals in the region remained on the company’s books, two of which have since been exited. “It’s going to do just fine,” Weber assures of the last.
Key personnel: Nick Weber, founder; Charlie Power, chief operating officer / chief financial officer; Christopher Kubier, managing director
AUM: €1.7 billion
Equity (at present): $1.4 billion ($950 million fund capital; $550 million co-investment)
Weber’s loyalty is one reason he managed to gather immediate capital support for Henderson Park, the London-based value-added and opportunistic European private real estate investment manager he subsequently launched last July. On day one, $500 million in seed equity was pledged by Stone Point Capital, another New York private equity firm, US and Kuwait investment firm Wafra Investment Advisory Group and the sovereign wealth fund, Kuwait Investment Authority. Wafra and KIA had previously backed Mount Kellett’s funds.
They are understood to be not the only investors to have kept faith, either. Weber declined to comment on Henderson Park’s fundraising as per the market’s regulatory solicitation rules. However, it is thought that of the $1.4 billion raised in total so far – $970 million for its debut fund Henderson Park Real Estate Fund I, the balance in co-investment – approximately 50 percent of the total has come from Mount Kellett investors.
The enthusiasm from investors to back Weber’s start-up is not difficult to detect. “We have been extremely pleased thus far with the progress that Nick has made … and look forward to continued success,” Fawaz Al-Mubaraki, chairman and chief executive of Wafra, says in an emailed statement.
“We continue to be excited about the exceptional opportunities that Henderson Park is sourcing…” adds Steve Friedman, chairman of Stone Point, in another. “Nick is a proven investor who has led several investment management platforms and we’re delighted to be partnered with him and the Henderson Park team.”
In fact, so supportive is the investor base, it is believed they have permitted carried interest to be earned by the firm after an 8 percent performance hurdle, lower than the market average rate of between 9-11 percent.
“He’s a very knowledgeable guy, so I expect him to be very disciplined. He’ll remain conscious of what his portfolio looks like and not be over-weighted into any one thing”
Weber refuses to be drawn on that, but says: “I feel extraordinarily humbled by [our] support. We don’t take lightly the fact we have this immense responsibility.”
Tellingly, Weber also continues to enjoy the endorsement of McGoldrick, who says while he does not give many references, he makes an exception for Weber when investors call. “I have given references to people calling to give investments. You always want to help people you believe in,” McGoldrick says. “I trust his judgment and think he’ll do well by his investors. He was offered the opportunity to stay at Fortress and was never going to have a problem finding a high-profile shop. But having the instinct and courage to step out says a lot.”
Mount Kellett’s funds are expected to be wrapped up in approximately one year, by which point its investors should at least have seen their capital returned, if not a little profit too, McGoldrick predicts. By that time, the investors that went on to back Henderson Park will have greater visibility on how Weber fairs away from his long-time mentor. While working for Goldmans Sachs and Mount Kellett, he can boast consistent target-hitting or exceeding performance.
Hezy Shalev, a managing director in the wealth management division of US investment bank First Republic, is one Mount Kellett investor that has since backed Henderson Park. He says: “When we looked at Henderson Park, we cut out the European real estate of Mount Kellett and found that, roughly, the equity multiple was 2.1x and the IRR was 27 percent gross. It was easy for us to verify each and every number as we have the Mount Kellett reports.”
Weber’s best-known home run was the Jury’s Inn hotel group, which, after selling to Lone Star in 2015, yielded an IRR of more than 90 percent and an equity multiple of 3.25x. For Henderson Park, the firm is aiming for far more modest returns of 18-20 percent, and McGoldrick believes Weber’s approach will see him succeed.
2.1x, 27% IRR
Return attributed to Mount Kellett’s European real estate investments by Henderson Park investor First Republic
“He’s a very knowledgeable guy, so I expect him to be very disciplined. He’ll remain conscious of what his portfolio looks like and not be over-weighted into any one thing. I don’t think he needs my help.”
Usually, there’s a story
Regardless of the circumstances, Mount Kellett has done more than showcase Weber’s investing acumen; the firm also was the source of its first deal: Le Méridien Etoile, Paris’s biggest hotel, which changed hands for €356 million in November, months after Henderson Park was established. It was the first of a subsequent flurry of outlays.
At press time, the firm’s portfolio comprised eight investments, including Le Méridien (see investment map). A private rented sector residential portfolio in London has also been purchased, as have further hotels in London, Birmingham and Athens and an office in Madrid. Last month, Henderson Park announced a European student housing joint venture with Hines, sparked by the purchase of a 630-bed development in Lancaster. Meanwhile, as PERE was going to press, the firm was reported to have exchanged on its first London office, Athene Place, which it is thought to be buying for approximately £100 million ($131.9 million; €112.1 million) from Dusseldorf-based real estate investment manager Commerz Real.
Even though Henderson Park’s capital has been raised against value-add-to-opportunistic strategies, the assets the firm has picked up thus far have a distinctly prime feel to them.
“They are large, institutional assets, some of which are throwing off a huge amount of cashflow. That doesn’t sound very opportunistic,” admits Weber. But, as he explains, the current market creates opportunities for such properties to generate higher returns.
When asked for common threads between Henderson Park’s deals, Weber says each deal usually has a story behind it. “If you look at our pipeline, 75 percent of the deals come from situations where something needs to happen, either motivated by debt, by swaps burning off, or by a tenant which cannot be held much longer,” he says. To buy well, Weber continues, there needs to be an ‘off-market’ aspect to a deal. It could be a bank pushing a property owner to repay or refinance its loan, or it could be a seller eager to seal a swift deal after failing to achieve an open market sale. “It doesn’t necessarily mean distressed situations, but most of the deals we’ve done have involved a motivated seller,” Weber adds.
The UK Hilton Metropoles are a case in point, touching on many of these themes. “We bought London’s largest hotel, which throws off nearly £31 million in cash, but it needs a lot of capex. It’s not a core deal, probably not even core-plus, but we definitely believe we’ll earn opportunistic returns.”
“This is not a ‘one and done’ job. This is a 10-20 year-plus job with a view to transitioning the business down the road”
The two assets, bought for exactly £500 million, were sold by private investor Tonstate, owned by 84-year-old property mogul Arthur Matyas. The assets were understood to have been saddled with £420 million of debt and Tonstate had initially sought £700 million.
Weber praises Matyas, who he explains did not default on a single debt payment during the entire financial crisis. “I know he wanted certainty that we’d do a deal. I told him I’d pay £500 million – not a penny more, not a penny less. We shook hands on a deal and I paid him that exact amount three months after we had that conversation.”
Indeed, being a sure thing in a transaction is something Weber regards as critical. “We try to distinguish ourselves by doing exactly what we say we’re going to do. [Sellers] come to us, not necessarily to get the highest price, but to get a price they can take to the bank in the knowledge we’ll deliver.”
In the next four to five years, says Weber, the wall of European real estate debt due to mature will create situations where quality assets need to be recapitalized. Henderson Park, he argues, is in a good position to watch for the stress in the system and deploy capital in assets which can generate high-yield returns: “Outside the UK, aside from Ireland, and to an extent Spain, Europe’s banks haven’t sold much. Most moved their loans to a hold-to-maturity book. It was absolutely the right play. Equity values have come up and banks have started to earn money, so they are able to provision their loans.”
Swaps, sold to sponsors at the height of the market, are gradually burning off, alleviating another barrier to owners readying assets for sale. “Something like $500 billion of debt is coming due over the next four to five years and a lot of that debt was struck when rates were very high. A large proportion of it was swapped. Banks need to deal with their loans. When they reach maturity, they cannot extend or hide them anymore. So, it’s really the wave of maturity which is driving a lot of activity,” Weber argues.
Sellers in such situations want certainty, rather than the last dollar, Weber believes. The ability to spot such deals and get the timing right is essential, he adds, pointing to the 2015 sale of Jury’s Inn during his Mount Kellett days, the success of which he says was due to correctly reading the investment market.
“He has a real nose for the deal,” McGoldrick comments. But he adds that Weber’s transactional instincts, and indeed the comprehensive experience he accumulated on the mortgage and special situations desks of Goldman Sachs, or indeed running the European business of Mount Kellett, are part of Weber’s broader appeal. Another part of the Weber package is his networking. Says McGoldrick: “He was very good at networking and that led to originating off-market transactions. He knew everyone, everywhere.”
First Republic’s Shalev concurs. “I really like him, and that’s his magic.” First Republic has backed Henderson Park’s fund to the tune of $50 million so far, and Shalev says his bank is weeks away from increasing that commitment by about another $10 million. That is a far cry from the number proposed when First Republic first considered a commitment. “In the early discussions, I told him we wouldn’t invest a great amount.”
Shalev says despite the low opening offering, he believes Weber’s treatment of the bank was no different to if he had cut a larger check. Describing Weber as “super high-charging,” he says: “he always responds to my emails and calls, however late in the evening. I get the sense he treats everyone exactly the same.”
Weber may have been a relative unknown in the past, particularly when placed besides McGoldrick. But he starts out on his own with a strong tailwind of support, including from his former mentor, to whom he returns praise for also honoring his commitment to Mount Kellett’s investors. “Mark is sitting there, plugging away to do the right thing. That takes a special person and they’re lucky to have a guy like that, doing that.” And when McGoldrick’s work at Mount Kellett is done, Weber sees a return to winning ways for him. “I don’t know and it’s not my place to talk about his aspirations, but I wouldn’t bet against him. He’s as smart as they come.”
While McGoldrick’s career is on pause, Weber’s is well and truly into the next chapter. And this chapter he hopes will be lengthy. “This is not a ‘one and done’ job,” Weber confirms. “This is a 10-20 year-plus job with a view to transitioning the business down the road. I’ve been fortunate enough to put together an incredible team and we want to build a best in class platform to invest through cycles into European real estate.”
About 18 months in and the omens are looking good: he has left Mount Kellett on good terms and has enjoyed sizeable capital support since, deploying a meaningful amount of that money already. Generate a similar performance to that while working with McGoldrick and it will be he who casts the big shadow.