The private equity real estate investment world is not large by any means. Comprised predominantly of pension funds, universities and endowments, the industry has adapted itself to meet the institutional needs of its investors. However for the president and chief executive officer of Boston-based Taurus Investment Holdings, Peter Merrigan, one sector of the private equity real estate investment environment has been largely underserved: high-net-worth individuals and family offices.
Comprising just 0.001 percent of the world's population “ultra” high-net-worth individuals – those with investable assets of $30 million or more – are not numerous by any standards. However, according to the latest Merrill Lynch “World Wealth Report”, they are growing in influence. There were 95,000 ultra-high-net-worth individuals globally in 2006, according to the report, up from 70,000 in 2003 – a 36 percent increase in three years. Of that 95,000, 40 percent were based in North America and a quarter in Europe.
And as an investment sector, ultra high-net-worth individuals, together with wealthy families, represent an interesting opportunity, not least for Merrigan. “I really think there is an unexplored niche of providing really interesting opportunities to the high-net-worth world,” he said.
But when dealing with individual investors and family offices, the traditional private equity real estate fund model is often not enough. Individuals and families like a more handson approach: Someone who is willing to talk to them daily and provide continuous feedback on projects. “Pension funds and the high-net-worth investors are very different – one is much more institutional in its approach, the other is much more of a direct personal relationship,” Merrigan says. “It's like a private bank, investors can walk in to your office to talk to you and they do.
“Investors come in here and it's an open book – it's a different kind of approach to the business. Dealing with that is not for everyone because it's a lot of work, but I think it's a big market.”
Founded in 1976 by Lorenz Reibling and Günther Reibling, Taurus was primarily focused on development opportunities in the US and Germany. However since 1997, when Merrigan joined the firm, Taurus has expanded its operations to become not only a developer and operator of real estate globally, but also an investor.
Today, Taurus works with more than 400 high-net-worth individuals and family offices, including several institutional players such as banks and pension funds, offering investors investment opportunities primarily on a deal-by-deal basis across 16 platforms, including operations in Europe, the US, Turkey, Latin America and Canada.
The firm has also just opened three more offices in Prague, Lima and Athens in a bid to expand its investment opportunities and take advantage of the growth in real estate in the emerging markets.
For Merrigan, the deal-by-deal approach means Taurus can be flexible. The firm doesn't have to answer to a “preset mandate” established before a fund has closed, or “do it in a certain timeframe.” It can, as Merrigan adds, be responsive to the demands (and vagaries) of the real estate market.
However, it also takes nerves of steel with each deal having to stand on its own merit rather than being judged as part of a large portfolio of properties. In short, every deal must make money for investors.
“You can't have a loser,” says Merrigan. “On the one hand, it's very challenging, but on the other it's incredible self-discipline. You have to study things so hard and make sure you understand them. It also keeps you very honest because all the deals have to work.”
“There are going to be a lot of people that, when they get over-leveraged and when things get over speculative, are going to get hurt, and that should happen actually. The people that didn't do that will be left to pick up the pieces.”
Of course it doesn't mean things don't go wrong. As Merrigan says smiling, “they do”, this is real estate after all. What is key though is the team. “It means you need to make sure you have the right team in place to make sure deals are executed properly.”
And with 170 people working under the Taurus banner globally, getting the chemistry right is vital. “With entrepreneurial deal flow, things will go wrong, it happens all the time. But when things go wrong you have to have a good chemistry with your team and good cooperation to fix things.”
As part of Taurus' expansion into Europe and Latin America, Merrigan has hired former Invesco head of Central Europe Ben Maudling to lead efforts in Eastern Europe. Maudling will be based in Prague, Czech Republic, while Andreas Metaxa will head operations in Athens, Greece. In Latin America, Taurus has appointed Keith Rapp to lead activities from Lima, Peru. The trio will be Taurus' entrepreneurs on the ground, according to Merrigan who adds: “It's hard to be entrepreneur without having access to capital, it's not easy to raise money if you're a small guy but you can come up with a great deal flow if you have that money behind you.”
Taurus will maintain its strong foothold in the US and western Europe, adds Merrigan, but emerging markets such as Eastern and Southern Europe and Latin America are appealing, not least for Prague and Athens which Taurus believes will provide platforms from which to move into Eastern European countries such as Ukraine, Romania and Poland as well as into Croatia, Macedonia and Bulgaria.
Already the three partners, the Rieblings and Merrigan, have made numerous visits to the countries to assess investments prospects, with Merrigan adding: “There will continue to be more and more opportunities in [those] markets over time. You have to take a longer view.”
The Boston-firm expects to roll out up to three new platforms each year in an effort to continue diversifying, with expectations Taurus will be investing up to $1 billion a year over the coming years.
Investments though will be very much led by Taurus, with the firm developing, managing and investing in all of its projects rather than taking a more “passive” investment approach. One such deal recently involved a joint venture with Apollo Real Estate Advisors in Istanbul, where Taurus acted as the operator and co-investment partner.
The €100 million JV, Taurus of Galata Gayrimenkul Yatirim, has already acquired seven properties in the city totaling more than 10,000 square meters with plans to develop the residential buildings to meet Turkey's growing demand for homes. The properties, located in the Beyoglu and Kadikoy city centers, will be sold by Taurus to owner occupiers or investors as rental income. “[This way] you have far better control over the outcome of your investments,” Merrigan explains.
And in today's current market, control is key. For Merrigan, Taurus' ability and experience in underwriting, developing and managing its deals has left them optimistic about the future.
“I think this is a cycle which is normal, and we have been through this before and we will go through it again and there is going to be a lot of people that, when they get over-leveraged and when things get over speculative, are going to get hurt, and that should happen actually. The people that didn't do that will be left to pick up the pieces and make some very interesting acquisitions and transactions. I like the fact that we are in that other camp right now, that's why I'm optimistic.”