The San Francisco treat

“Real estate in San Francisco is now the drug of choice.”—Bill Zanker

Last month, the city known for cable cars, earthquakes and flower children congregating on the corner of Haight and Ashbury to experiment with hallucinogens became known for a drug of a different ilk: welcome to the mind-altering power of real estate.

At least that was the theory put forward by Zanker, the founder of The Learning Annex, which hosted its latest Real Estate Wealth Expo in the city where Tony Bennet left his heart. After approximately 50,000 attendees flocked to similar events in New York, Chicago and Dallas, Zanker predicted that even more would make their way to San Francisco to pray at the altar of Donald Trump. 50,000 addicts descending on the city used to mean a Grateful Dead concert—today, it means hundreds of booths advertising get rich quick in real estate schemes.

Two weeks before The Donald came to town, real estate junkies of a different sort gathered just a few blocks away. The site: The Palace Hotel. The reason: the 2006 spring conference of the Pension Real Estate Association. The difference: attendees, numbered in the hundreds, managed portfolios in the billions and listened to keynote presentations that were decidedly less upbeat.

Opening keynote speaker and former Secretary of State Madeleine Albright proclaimed herself an “optimist who worries a lot,” a self-characterization echoed by Byron Wien, chief investment strategist at Pequot Capital and the primary speaker on day two. Albright discussed the war in Iraq, a nuclear standoff with Iran, a growing nuclear threat in North Korea and a government in China that suppresses dissent through censorship and torture. Wien pointed out that “this generation [of Americans] is less optimistic about their children's future than any previous generation since 1620,” when the Pilgrims landed at Plymouth Rock.

Perhaps it is time to refresh our definition of optimism— and for Madame Secretary and Mssr. Wien to start taking drugs of their own, preferably “uppers.”

To be fair, the current state of US foreign affairs or US economic superiority—let alone the US real estate market—provides few reasons for warmth and cheer. Which is perhaps why the theme of the conference was “emerging”—emerging markets, managers and products—and why the tone of the panelists was so much rosier than the keynote addresses.

With regards to emerging markets, an upbeat assessment carried the day—though it was tinged with all the requisite caveats about investing in faraway, foreign locales. The optimism was perhaps best captured by Joseph Stechter, portfolio manager for General Motors Asset Management. Quoting statistics from a demographer, he pointed out that the world's population will increase by 2.6 billion people over the next 50 years, most of it in emerging markets, creating approximately 2,600 completely new cities with populations of 1 million people—or, to put it in more remarkable terms, one new city every week for the next half a century. “That sounds to me like a good real estate opportunity,” he said.

Significantly murkier was the consensus on emerging managers. The first problem was defining them. The second was finding them. As one conference attendee noted in passing, “Why would anyone trust [pension fund advisor's name withheld] to find emerging managers?”—implying that the expertise of traditional consultants lay elsewhere. Yet given what's happening in mainline private equity, where emerging managers are a significant trend, expect more discussion on this topic at next year's conference.

Speaking of next year, one wonders if The Real Estate Wealth Expo will make another visit to San Francisco (or any other city) in 2007. The popular press seems to indicate that the residential market is softening—and with it the need to host events catering to would-be property moguls—but the crowds thronging the city by the bay may suggest otherwise.

It's tough to discount the smart money investing internationally. But it may be equally tough to discount the profits to be had in domestic real estate—at least in domestic real estate conferences. Last month, Apax Partners, a well known private equity firm, acquired a “significant” minority stake in The Learning Annex—in a statement, Apax partner Jacqueline Reses cited the company's growth in new areas, such as conferences, as one of the transaction's main selling points.

Peddling drugs to the masses, after all, can be big business.

Morgan Stanley closes on $4.2bn
Morgan Stanley Real Estate has concluded fundraising for its latest opportunistic international vehicle, Morgan Stanley Real Estate Fund V International, with $4.2 billion (€3.5 billion) of equity commitments. The fund plans to acquire a diversified portfolio of assets primarily in Japan, Asia-Pacific and Europe and has already committed about 50 percent of its capital, predominantly in Japan, China and Western Europe. Morgan Stanley Real Estate has formed six real estate funds since 1991, acquiring $77.5 billion of real estate assets worldwide in that time. They currently manage $43.1 billion in real estate assets.

Starwood creates resort development unit
Greenwich, Connecticut-based private equity real estate firm Starwood Capital Group has created a new subsidiary that will oversee development of the firm's residential and resort investments in the Eastern United States and Caribbean. The new entity, Starwood Land Company, to be based in Fort Lauderdale, Florida, will be headed by former St. Joe/Arvida chief executive officer Jim Motta. While at St. Joe/Arvida, the residential real estate arm of the St. Joe Company, Motta oversaw development of 16 resorts and planned communities in Florida's panhandle region. Motta will be joined by Roy Paskow and Gary Walker, who were named vice presidents of the new firm.

Camden, Onex to develop apartments
Camden Property Trust and Onex Real Estate Partners have formed two joint ventures to develop apartments in Irvine, California and Houston, Texas. Camden Plaza in Houston will feature 271 luxury apartment homes in a four-story building and is expected to cost $43 million (€35.6 million). Camden Main & Jamboree in Irvine will feature 290 luxury apartment homes in four- and fivestory buildings and is expected to cost $107 million. Onex will retain a 70 percent stake in each venture; and Camden will be the general partner and own a 30 percent stake.

SkyBridge invests in Westport Capital
Newly launched Westport Capital Partners, an opportunistic real estate investment firm started in 2005 by former OakTree Capital Management portfolio manager Russel Bernard, has received seed money from New York City-based hedge fund investor SkyBridge Capital. The amount of the investment was not disclosed. SkyBridge, which is backed by Dell Computer founder Michael Dell, will make the investment through its affiliate SkyBridge Capital Partners, a real estate fund that reportedly raised approximately $330 million (€273 million) in 2005. Westport has offices in Los Angeles and Westport, Connecticut, and focuses on domestic and international distressed assets and turnaround opportunities.