CHICAGO - With a real estate investment fund showing a 45% return and two West Coast hotel deals in the works, you would almost think Neil G. Bluhm was back in the 1980s.
But Mr. Bluhm, co-founder of JMB Realty Corp., knows you can't turn back the clock.
Instead, he's looking forward - rolling out a $300 million opportunity fund, the second offered by his new company, Walton Street Capital L.L.C.
Meet the new - some say humbled - Neil Bluhm.
At 59, he's back on the road, trying to raise money from some of the same pension funds burned by JMB partnerships less than a decade ago. There are fewer zeros on the end of each transaction, but he doesn't seem to care. Those who know him say Mr. Bluhm is back simply because he loves to deal.
But there's another reason, too.
"It's not the money, because he doesn't need it," said Miles Berger, chairman of Chicago-based Heitman Financial Ltd. "It's mostly the action, but a part of it is redemption."
Something to prove
Maybe more redemption than action. Mr. Bluhm has something to prove: that he can make money again, for other people.
He once was an ace fighter pilot, taking big deals out of the sky. Now, Mr. Bluhm is the old general who wants to win the last battle.
JMB was one of the largest real estate advisers to pension funds, managing more than $8 billion in assets. But when real estate values collapsed in the early 1990s, JMB's investments suffered.
Worst of all might have been what happened to the 1987 deal that pushed JMB into the top ranks of real estate managers: the $5.1 billion leveraged buy-out of Canadian mall owner Cadillac Fairview Inc. that was backed by 39 pension funds.
The Cadillac deal ended in bankruptcy, heavy losses for the pension funds and a bitter lawsuit against JMB.
And while JMB won the legal battle - a 1995 settlement award of $22.5 million in fees and $13 million in debt relief - Mr. Bluhm and JMB's co-founder, Chairman Judd D. Malkin, lost the war.
Mr. Malkin decided not to pursue new investment opportunities, preferring to watch over JMB's existing holdings - a process that continues today.
In October 1994, the firm sold its pension fund advisory business to Heitman, and Mr. Bluhm launched Walton Street Capital.
"I could have made more money myself, rather than bring in all these partners," said Mr. Bluhm. "It's a matter of pride. It's my reputation."
But raising money was understandably hard. A first fund, launched in May 1995, raised $150 million. But it took two years and closed $50 million short of its goal.
"Is it the vehicle or is it (Walton Street's) management? I don't know," said Douglas Bennett, chief real estate investment officer for the Florida State Board of Administration, Tallahassee, which invested $67.5 million in the ill-fated Cadillac deal.
The taint of Cadillac Fairview is fading, but it hasn't disappeared.
Many pension investors would not comment on Cadillac Fairview or Mr. Bluhm.
But Judith Freyer, vice president of investments for the Philadelphia-based Board of Pensions of the Presbyterian Church, makes her point.
"If you look in the records of the Cook County court," she said, "you'll find I was a witness for Cadillac Fairview" against JMB.
Walton Street's slow start was the antithesis of 1987, when Mr. Bluhm raised $1.5 billion from pension funds for the Cadillac deal in just six months.
Now, the going is tougher.
But in the style of a true salesman, Mr. Bluhm is turning a negative into a positive. His pitch: I want my reputation back. I'll work my tail off to make money for you.
Douglas E. Beckmann, assistant treasurer of the University of Illinois Foundation Fund, Urbana, which in 1995 committed $3 million to Walton, recalled Mr. Bluhm's message.
"He said, 'My name is getting slung around pretty good. I'd like to make people remember me more favorably.' "
But money talks, and Mr. Bluhm has hit some home runs.
For its six investments made before Jan. 1, totaling $41.8 million, the fund estimates an eventual total return of 44.9%.
And this year, Walton Street has continued its bargain-hunting:
* In June, Walton Street snapped up a vacant downtown Philadelphia office building at a total cost of $45 million, and then turned around and inked a 10-year, $120 million lease.
* In August, the fund paid $32.9 million for a $60 million mortgage on a downtown Seattle office building that was tied up in bankruptcy. If the mortgage is paid off when it comes due next year, the fund will nearly double its money, or take the title.
* Also in August, the fund paid $176 per square foot for a San Francisco office building after discovering the owner had substantially undermeasured the rentable space.
Walton even expects to do some real estate development, adding into the mix two hotel projects in California.
Learning a lesson from JMB, Mr. Bluhm doesn't expect to hold any of the properties longer than five years.
"This is a window that can shut quickly," he said. "We should have liquidated everything in 1989."
The deals are brought to Mr. Bluhm by a team of young partners who scour the country looking for opportunities.
Aside from Mr. Bluhm, there are eight other principals - including his son Andrew - whose average age is 36. And Mr. Bluhm relishes their enthusiasm.
"I think he gets a charge from being around us," said principal Jeffrey S. Quicksilver. "He thrives on the energy."
In some ways, the office is reminiscent of JMB's early days.
"There was a lot of energy, a lot of kidding around," recalled sports magnate Jerry Reinsdorf, who gave up his tax law practice in 1973 to form real estate syndicator Balcor Co. with Robert Judelson, the third JMB co-founder.
Today, Mr. Bluhm is putting together Walton Street's second fund, which opened Sept. 3 with a goal of raising $300 million.
Content to stay small
The first fund's results should make it easier to raise money, and preliminary indications are all of the first fund's investors - including the Chicago Public School Teachers' Pension and Retirement Fund and the Bush Foundation, St. Paul, Minn. - will stay in, Mr. Bluhm said.
He is unconcerned the deals are smaller now; in fact, he doesn't want the fund to get too big.
"I know what it's like to have too much money to manage," he said. "You have to stretch."
And he'd love to make money for some of those Cadillac Fairview investors.
"We would redeem ourselves, if you will."
Crain News Service