Many of those setting up new businesses are senior industry figures. Staybrook is an example – it is led by Rob Brook, Adrian McStay and Teresa Dyer, well-known former executives from Patrizia, CBRE and M7 Real Estate respectively.
Other big names to have launched new companies include M7 founder Richard Croft with Martley Capital, former Lone Star executive Angus Dodd with Wandle Real Estate Partners, ex-Principal Real Estate Europe chief executive Andrew Thornton with Enterprise Land and former Blackstone managing director James Lock with Rotation Real Estate.
The list goes on. And alongside them are a host of younger industry professionals taking the plunge into entrepreneurship.
Timing
There are a mix of push and pull factors behind the wave of new launches. Many will have seen lucrative incentive packages wilt away following the market downturn, giving them less reason to stay put. Worse, some will have found themselves stuck in jobs where work is drying up and people are being made redundant.
But at the same time, there are positive drivers at play. The prospect of a new market cycle and the change and disruption that comes as activity picks up again make it an appealing time to start a new business.
This was the case for former TPG equity partner Michael Abel, who launched Greykite Investment Adviserin March, having secured cornerstone commitments totalling £275m.
“The biggest driver for me was the point in the cycle that we are in right now. When building your own investment firm, you want to be doing it at the bottom of the cycle when assets have repriced, and there’s dislocation and distress,” says Abel.
The advantage that new investment managers like Greykite have over more established rivals is that they can go on the offensive and focus on new deals. They don’t have to spend time dealing with problems facing legacy investments.
This helps explain why such a large portion of the new businesses to have launched are investment and asset managers of one sort or another.
The caveat here is that, apart from Greykite and one or two others, including notably Evonite, led by five former executives at Rockspring and Patrizia, only a small number have set themselves up as fund managers. That is because fundraising is exceptionally tough at the moment.
“It is so hard to raise money right now, but it is particularly difficult for new launches,” says Jonathan Read, a managing director at Hodes Weill & Associates. “It is a little easier in the US where there are at least a handful of groups who have dedicated capital to invest in new launches, but we don’t really have that in Europe.”
The rise of operating partners
Far more common are new operating partners. These firms have more opportunities open to them than was the case in previous cycles. One of the reasons is linked to changes in investor behaviour.
Rotation Real Estate’s Lock says: “Institutional, private, and alternative investors are seeking an increased weighting to direct investing, enabling operating partners with the relevant experience and market reach to align themselves with this capital.
“However, the real estate expertise is only party of the equation, you also need to understand how they underwrite, analyse, and think about investing. This combination of institutional insight and real estate knowledge is what we offer at Rotation.”
The increasingly operationally intensive nature of real estate is also driving a need for skilled operating partners. Added to this is a growing sense that in the cycle to come, with interest rates unlikely to revert back to pre-2022 levels, it will be harder to make money by just buying and holding real estate. Owners will have to roll their sleeves up and look to add value.
Even well-resourced, established fund managers cannot do this work all on their own, leaving plenty of opportunity for the new wave of firms.
Keys to success
This isn’t to say it will be an easy ride for those starting out. Deal activity has picked up, but it is not a busy market.
Those set up by the most experienced, well-connected industry professionals are naturally well placed to succeed. Some newly formed businesses have already started to pick up their first instructions.
Following Lone Star’s £600m acquisition of Project Tiger last month, Rotation was appointed by the private equity firm to manage a sub-portfolio of industrial assets. And last week, Marchlyn – set up by Paul Pritchard, Ellen Langdon and Nicho Jenkins – advised Tristan Capital Partners on its £112m acquisition of Cody Technology Park with XLB Property.
As well as having a strong team, most new businesses have homed in on particular areas of specialism. Logistics and residential remain top choices, but others have stated that they plan to focus on other sectors, including offices and retail.
“We’ve seen over 30 new businesses to invest into in the first couple of weeks since we launched”. Alex Price, Ashen Capital
Abel says: “I think it’s important to focus on what you’re good at, and not try to do everything. You won’t be able to differentiate yourself if you are trying to cover every country, every asset class and every deal type.”
Another ingredient of success is having sufficient working capital to ride through slow periods. Founders will often bring significant capital of their own, but plenty will be looking for investment.
Alex Price, the former chief executive of Fiera Real Estate UK, who has just launched Ashen Capital with former colleague Steven Wright to back new asset management and development companies, has had no shortage of knocks at the door.
He says: “We’ve seen over 30 new businesses to invest into in the first couple of weeks since we launched – there are some really good companies out there.”
Many well-known real estate companies were set up in the aftermath of the financial crisis: M7 and Tristan come to mind in the UK, both founded in 2009, as were many across the globe, perhaps most notably the logistics behemoth GLP.
Not all the businesses launched this year will make it, but don’t bet against some of them developing into leading names as the new cycle gets into full swing.
