New realty boutiques seek small, different deals

Real estate executives and consulting partners are leaving comfy homes at established companies to strike out on their own.

Part of the driving force to own their own firms is a ready source of capital from institutions eager to invest in the asset class, but with individuals who can demonstrate a track record, consultants say. Also, many executives from the established firms raising billion-dollar funds are fleeing the constraints of having to put so much money to work.

Some of the real estate firms spawned in the last 18 months include:

• Rockpoint Group LLC, Boston, formed by five partners from Westbrook Real Estate Partners;

• Cyburt Hall Partners LLC, Los Angeles, formed by the former head of Boeing Realty Corp. and a former managing partner for the real estate advisory practice of Ernst & Young;

• Dune Capital Management LP, New York, founded by Steven T. Mnuchin, formerly chief executive officer of SFM Capital Management LP., a Soros Fund Management affiliate, and Daniel M. Neidich, former managing director of Goldman, Sachs & Co. and chairman of the investment committee at its real estate unit, Whitehall Funds.

• Arsenal Real Estate Funds LLC, Morristown, N.J., formed by a group of executives from Prudential Real Estate Investors.

• Embarcadero Capital Partners LLC, Burlingame, Calif., formed by a former executive from Shorenstein Co. and two William Wilson & Associates executives

• BayNorth Capital LLC, Boston, formed by the real estate group of Charlesbank Capital Partners LLC.

Investment professionals are leaving big firms at an increasing rate, in part to return to the days when they could invest in deals too small for the big real estate funds or deals that do not fit within a single style box, said Doug Bond, senior managing director of HFF Securities LP, a Los Angeles-based real estate placement agent.

The trend has as much to do with generational issues and pure opportunity as with as the nature of the institutional real estate fund industry, said Brad Hall, managing director of Cyburt Hall.

Private equity funds that invest in commercial real estate assets is a relatively new business. It got started in the late 1980s and early '90s, Mr. Hall said. And there's little room for advancement for a 30-something fund executive when the fund president is only 40 or 45, with plenty of investment years ahead.

"So people are looking at opportunities and that, coupled with the availability of capital and the demand for talent to place it, creates opportunities" for individuals to start their own firms," Mr. Hall said.

Philip W. Cyburt, managing partner of Cyburt Hall, said he left Boeing Realty, where he invested and developed real estate for the corporation as well as Boeing's pension fund, because he wanted a challenge.

"It got to the point the portfolio was structured as a best-of-class organization," Mr. Cyburt said. "There was no place else to go in the company. After 20 years in the industry, it was time to take my show on the road."

At times, the departing team will maintain ties with its former parent, at least until the funds they managed have been wound down. For example, BayNorth Capital's Charlie Wu and Chip Douglas left Boston-based Charlesbank Capital in July, but they haven't strayed far. They share office space with Charlesbank and still manage the Charlesbank realty funds.

That partners are willing to leave more secure employment to take the risk of striking out on their own could be a sign that real estate investment is starting to pick up, said Bruce Schonbraun, managing partner of Managing Partner of real estate consulting firm The Schonbraun McCann Group LLC, Roseland, N.J.

"People tend not to make change when they perceive risk. When people do make a change, it's a sign the opportunities are growing," Mr. Schonbraun said.