Clarion Partners is on its own again

Clarion Partners' top executives prefer to think of business with their real estate investment firm as “same old, same old,” despite being newly independent for only seven months.

Snapshot

Doug Goodman

Stephen J. Furnary, C. Stephen Cordes and David Gilbert

• Assets under management: $22.8 billion (as of June 30)
• Education:
• • Mr. Furnary: B.S., Villanova University; MBA, Boston College
  • Mr. Cordes: B.S., New Jersey Institute of Technology; Master of Public Administration, Rutgers University
  • Mr. Gilbert: B.B.A., University of Massachusetts; MBA, Wharton School, University of Pennsylvania.
• Interests:
  • Mr. Furnary: sailing, skiing, golf; trustee and governor of the Urban Land Institute, former chairman of the Pension Real Estate Association; former chairman of the National Association of Real Estate Investment Managers; married, 3 children.
  • Mr. Cordes: travel, golf; executive committee of the National Multi Housing Council, member of the Urban Land Institute, the Association of Foreign Investors in Real Estate and of the Pension Real Estate Association; married, 2 children
  • Mr. Gilbert: skiing, golf, tennis; past board member and member of the Pension Real Estate Association and member of the Urban Land Institute; married, 3 children

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Before its spinoff from Dutch bank ING in February, Clarion Partners' fate had been the subject of conjecture and wild speculation. After the 2008 global economic meltdown and a Dutch government bailout, ING identified a number of businesses it would sell, including its real estate operation. CB Richard Ellis bought much of what had been ING Real Estate.

Stephen J. Furnary, Clarion's chairman and CEO, and the rest of the leadership team decided they wanted to become independent. The management buyout, with a financial assist from Lightyear Capital LLC, took a year. During much of that time, the real estate investment market was pretty slow. Indeed, the former ING Clarion's plan to launch a global opportunity strategy was quashed. Firm executives say the management buyout was completed just as real estate is beginning a recovery cycle.

Mr. Furnary, who helped to found the firm 30 years ago, has the longest tenure of Clarion Partners' top executives, but he declines to be in the spotlight alone. He would rather put the focus on the firm and its people. Clarion, which never gave up its name after ING bought it a dozen years ago, is a group effort. There are 31 partners in the firm, which is managed by a five-member executive board.

Mr. Furnary was joined in the interview by two of his partners: C. Stephen Cordes, chief operating officer and head of portfolio management, and David Gilbert, managing director, chief investment officer and head of acquisitions.

Why wasn't Clarion Partners combined with CB Richard Ellis?

Mr. Furnary: We really were desirous to have the business back in our hands as it was when we sold it 12 years ago. ... There was a fairly substantial overlap in the two businesses that would have led to a lot of dislocation in this business and, quite frankly, this business would have been folded into their existing American business, and that was not really appealing to us candidly, we didn't think it would be appealing at all to our clients.

How did you conduct business while ING Real Estate was being sold?

Mr. Furnary: In terms of new capital being invested, it was not a time when there was a ton of new capital. ... The market for new investments was pretty slow. We got lucky; it was not like there was a lot going on and we were missing out.

We started this firm almost 30 years ago; we sold an interest in it just when we formed it, we bought it back in 1995 and then sold the firm to ING. ... Throughout all of that, the management team and the clients stayed together. The clients actually believed that there would be very little turmoil in this (most recent) transition.

As you were finalizing the spinoff what sort of real estate world did you find yourselves in; what kinds of strategies are you embarking on?

Mr. Furnary: We're very fortunate in the business that we're in that we have very long cycles...And we were just starting to begin the new positive cycle. Values were going up, occupancies were going up in our portfolio, rental rates were just starting to move up. Having had three years of a lackluster market — and in the beginning a negative market and then a lackluster market— ... we started a recovery. It worked out pretty well and when we came to finalize the transaction with ING and with our management team and our private equity partner, we were really beginning the recovery. That just means in our case, many of our clients are making new allocations to real estate, and to us in particular. More capital is flowing into open-end funds and more capital is going into separate accounts. Half of our money is in separate accounts and the other half of our money is in funds.

Mr. Cordes: When ING made its announcement (they intended to sell) at the end of 2009, things were pretty bleak. In early 2010, when we began to have early conversations with a myriad of potential suitors, things were not that much better... and the credit markets were pretty much shut down. In about six months time, we saw a dramatic change. ... We had a very good feeling about where we were headed. ... Our earnings were not where they had been, but our future prospects for the growth of the business were very, very good.

What type of real estate are your clients interested in?

Mr. Gilbert: The first wave of capital, which is typical of these cycles, is core. In periods of risk, clients often they begin to invest in the low end of the risk spectrum and that was certainly trust this time. We're beginning to see the next wave, which is classically value-add. The thing that has surprised many of us who have seen this before is that there was a period of time, even a year ago, a year and a half ago where some were expecting large volumes of distress ...and that has not happened, not nearly to the volume we expected. ... So while there have been some of that (distress) to work out, it has not resulted in this massive opportunistic investing opportunity.

We use capital to rescue buildings from property owners that do have with financial problems and will continue to be because there is a lot more of that to do... We are pretty comfortable that we are in a period of economic recovery, albeit at a little bit slower pace and scale that we had thought even six months ago.

Mr. Furnary: It is pretty clear that our deal flow is just beginning to show opportunities to invest in new development. We are trying to get in on the front end of that and get in on the earlier vintage of development. That's where you get the best reward for the risk.

In what sectors are you finding development opportunities?

Mr. Gilbert: Multifamily is an area where there's been a dearth of new supply. That's an area where we are very, very active. ... Multifamily is at the top of our list for development opportunities. We have projects underway in Boston and southern Florida and we are looking at deals in a number of markets.

What happened to the global opportunity fund?

Mr. Gilbert: I joined with a mandate to lead a global opportunity strategy, something I had done before at J.P. Morgan. ...The world did unravel a bit a year or so after I joined when we were building that effort and that advantage of being in a large global platform, if you want to be a large global player didn't exist. So if you asked where the next best place to be it would be in a privately owned managed partnership investing in the U.S. and that is where we find ourselves.

What are your plans?

Mr. Furnary: I would say be the best real estate firm on the planet.

And what else?

Mr. Furnary: That's it. We will hopefully expand our reach. We just launched in South America and I would hope we get back to Europe, Asia. We are locked out (under Clarion's agreement with ING) of doing that for a year and that's fine because we have our hands full over here. I am very hopeful we get back into those regions over time.

— Contact Arleen Jacobius at ajacobius@pionline.com