Real estate, though often described as the quintessentially provincial business, is anything but for Mike Profenius. As the head of Warburg Pincus' invigorated real estate investment business since joining from Merrill Lynch in 2004, Profenius has put the firm's considerable capital and resources behind investment platforms that range from China to the UK and beyond.
With a fresh, enormous pool of capital now under its belt – the firm recently closed its ninth private equity fund on $8 billion – not only is the overall Warburg Pincus pie bigger, it would appear that real estate will represent a larger slice of that pie, although the firm makes no allocations to any particular industry group.
“Because of our investment model and strategy, we are not under pressure to put money to work,” notes Profenius.
Over the past several months, Warburg Pincus has increased to 10 the number of investment professionals it has dedicated to real estate worldwide. In July, the firm announced the hiring of New York-based managing director Patrick Sullivan, a former general partner in the real estate group of JP Morgan Partners. Two recently added team members include Pedro Aznar, who is based in London, and Miao Chi, who works out of the firm's Shanghai office. In addition, the firm has brought on a new partner to focus on real estate investing in Asia – Philip Mintz, the former President of General Electric Real Estate Asia Pacific, will be working out of Warburg Pincus' Hong Kong office.
Profenius joined Warburg Pincus after an 18-year career as an investment banker at Merrill Lynch, most recently in London, where he was global co-head of real estate and hospitality. Profenius notes that Warburg Pincus has long been involved in real estate and real estate-related investments – over the past twenty years, the firm has committed approximately $1 billion in equity to various companies and platforms. Nevertheless, according to Profenius, its program in this area was “less than systematic” when he joined, something that he has endeavored to change.
Rather than focusing on particular real estate assets, Profenius and his team instead focus on real estate companies or platforms in order to take advantage of certain themes in specific markets. For example, earlier this year, Warburg Pincus financed the start-up of Wall Homes, a Texas homebuilder geared to the entry-level homebuyer to capitalize on the state's favorable pricing dynamics. To date, the firm has also backed Sunwood, a Korean developer; Resolution II, a UK-based developer; and Racebrook, an operating platform which will seek to take advantage of current loose lending standards and buy underperforming commercial real estate loans.
“There's not a lot of distressed debt yet,” says Profenius, “but it looks like there might be.”
Profenius says Warburg Pincus makes a great platform for real estate investment because of its global reach and its wide-ranging industry expertise. The New York-headquartered firm has offices in Menlo Park, London, Frankfurt, Hong Kong, Seoul, Mumbai, Tokyo, Shanghai and Beijing, and Profenius says Warburg Pincus' contacts in those regions have led to deal flow. The real estate team has also been able to enjoy additional synergy with the rest of the firm, for example, when the healthcare industry group shed light on leasing dynamics among biotech companies.
While reluctant to play favorites, Profenius is clearly excited by the opportunities in India and China, where development and distressed situations loom large. Though Profenius expects to spend an equal amount of capital in each of the three broad geographic regions covered by Warburg Pincus – US, Europe and Asia – he readily admits that “there is a focus on Asia.” In fact, the firm recently made its first Asian real estate investment in R&F Properties, a publicly listed developer of midpriced homes in China, primarily focused on the greater Beijing and Guangzhou markets.
Of course, Profenius is not the only Warburg Pincus employee excited about the opportunities in Asia and India. Chip Kaye, the firm's co-president, recently became chairman of the US-India Business Council, a membership organization comprised of 125 US companies investing in India started in 1975 by Henry Kissinger.
And now that Profenius has built out his team, expect that excitement to continue. “There's going to be a lot more to talk about as we move forward,” he promises.