J.P. Morgan Asset Management Global Real Assets executives expect that creating an opportunity fund investment “boutique” within the $46 billion real estate investment powerhouse will give them an edge in raising capital.
Industry executives interviewed for this story had trouble coming up with examples of other large multistrategy real estate investment firms that have tried launching a boutique.
With fundraising at its lowest level since 2003, access to capital is expected to be key to separating winners from losers for the near future, industry insiders say.
J.P. Morgan is presenting the subsidiary as a new firm that doesn't have the baggage of poor returns and tarnished reputations that plague existing real estate firms. In the past, large investment firms like J.P. Morgan took pains to ensure that all of their strategies carried their brand. J.P. Morgan executives say that in this environment, being new and different will be a huge competitive advantage.
J.P. Morgan Asset Management's new opportunity fund boutique will be known as Junius Real Estate Partners, after J. Pierpont Morgan's father, Junius Spencer Morgan. It will be wholly owned by J.P. Morgan Asset Management; however, the seven or eight team members will keep a “sizable portion of the profits” in the form of carried interest, Joseph Azelby, New York-based managing director and head of the global real assets group, said in an interview. The exact percentage will be finalized when the entire team has been hired.
Mr. Azelby said he expects Junius will come to the market in the next 12 to 36 months.
The structure will be similar to J.P. Morgan's India and China-based real estate investment groups, which have dedicated teams that share in the carried interest, he said.
“We think we have a unique model. We're building a highly focused and dedicated boutique that's backed by the resources of a platform that is very well known and, we think, highly respected in the marketplace,” said Mr. Azelby, who has been with J.P. Morgan Asset Management since 1986. He worked in the firm's mortgage investment strategy group in fixed income before joining the real estate and infrastructure group.
Being a large real estate investment firm with a global reach is a pretty hard sell to institutional investors, industry executives and consultants say. Most institutional investors saw their real estate portfolios plummet in value since 2007 and few have recovered. As a result, most large investors are now focusing on retaining control.
“It's a Catch-22 for investors. From the folks we speak to, which are mostly endowments and foundations, they want to invest with managers who are sharply focused on their area of core competency. This generally means smaller fund sizes and smaller platforms,” said Glenn Shannon, president of Shorenstein Properties, a San Francisco-based real estate investment firm. ”On the other hand, the manager needs to have sufficient scale to have the resources be a good fiduciary and to attract and retain talented professionals.”
Unlike J.P. Morgan's multistrategy real estate and infrastructure investment platform, the Junius unit will be focused on a single strategy: U.S. opportunistic commercial equity and debt investments, possibly investing in private real estate operating companies.
“We have a couple of competitive advantages,” Mr. Azelby said. “We have the strength of J.P. Morgan Asset Management. We have ... experience in the real estate market and we have a newly formed team on a very strong platform with no legacy challenges. It is a huge competitive advantage,” Mr. Azelby said.