CHICAGO -- Heitman Capital Management CEO Charles Wurtzebach has resigned following a major restructuring.
Heitman's reorganization is an obvious effort to convince commingled fund clients to reinvest with the firm once they are cashed out of the funds, many of which are expiring.
Heitman has $8.7 billion in assets under management, of which about $3 billion is in commingled funds.
Mr. Wurtzebach and Heitman executives were evasive about why he quit.
But sources said Mr. Wurtzebach no longer wanted to work for the trouble-plagued firm, and that he was concerned for his professional reputation.
Still, he was supportive of the firm's new emphasis on opportunistic deals, international real estate and public real estate securities.
Heitman also lost one of its most successful money-raisers: Managing Director Michael Casey. Mr. Casey estimates he closed about 25 transactions worth $1.5 billion during the last five years, most of it for Heitman's separate account pension fund clients.
Both resigned effective March 31.
Mr. Wurtzebach has no other job lined up; Mr. Casey joined Cliffwood Partners, a Los Angeles money manager that invests in real estate securities.
Mary Ludgin replaces Mr. Wurtzebach; she had been chief operating officer.
Tom McCarthy replaces Ms. Ludgin as COO. He formerly was head of Heitman Capital's portfolio management group for institutional accounts.
Mr. Casey's duties have been assigned to others.
In an internal memo, Norman Perlmutter, chairman of Heitman Financial Ltd., the holding company for Heitman Capital, discussed the restructuring: "We've realigned our management to help our investors move rapidly from commingled core funds into the new wave of high-yield and securitized vehicles.
"For many institutional investors, real estate has moved beyond traditional asset allocation into innovative total return strategies," said Mr. Perlmutter. "In addition to serving our clients' interests in core strategies, we have worked to create vehicles to provide high-yield investment opportunities and investments in public REITs."
Of the new direction the firm is taking, Mr. Wurtzebach said: "It is a direction that makes a lot of sense for the vast majority of the senior members of the firm."
Real estate has become directed and deal oriented, said Jerome Claeys, chairman of Heitman Capital.
"That is a different business than Charlie has run," said Mr. Claeys, who hired Mr. Wurtzebach at another firm in the early 1990s.
"He is a researcher by training," said Mr. Claeys. "He is a portfolio strategist, and he thinks in a broad way.
"'Yet, clients today are looking to react to individual changes."
Mr. Wurtzebach's immediate plan is to take a vacation before beginning his job search.
"I expect to stay in the business," he said. "I wanted to do it this way, to take the time and do a lot of thinking."
Much of Mr. Wurtzebach's recent responsibilities at Heitman involved international real estate, which he said is exciting and interests him.
Domestically, the last few years have been difficult ones for Heitman Capital, particularly in its commingled fund business.
Sales of properties ($1.4 billion in 1997) exceeded new money coming in for real estate management ($900 million), and its parent, United Asset Management, took a $175 million charge against 1997 earnings because of that imbalance.
Heitman expects to sell $2.4 billion this year, according to Mr. Perlmutter.
The firm also suffers from a reputation as slow to sell properties and for being insensitive to clients, a situation senior management knows it needs to reverse if it expects to retain the commingled fund clients.
"We were slow to react to the need to change those structures and fees," Mr. Claeys admits. "We thought we came up with a creative solution," he said alluding to a 1997 rollup effort.
"The clients didn't buy into it."
Mr. Claeys said he expects pension fund attitudes about the firm to soften as it continues to sell properties.
The firm is focusing on getting the message out about the work it has done for separate account investors, which has been good, said Mr. Claeys.
"I think we will gradually be able to earn back the respect of clients," he said.
Heitman is still a heavyweight among pension fund real estate money managers.
Although it has lost several billion in assets under management in the last two years, it remains one of the five largest real estate money managers.
TURNAROUND NOT EASY
But turning the firm around won't be easy.
Its reputation was hurt by two recent disagreements with clients. In one, the $3.8 billion Orange County Employees' Retirement System forced Heitman to sell -- ahead of the money manager's schedule -- four of 11 properties in which the pension fund was a co-investor.
Before that, investors rebuffed Heitman's 1997 effort to roll up the expiring commingled funds it manages into a series of property-specific real estate investment trusts, with Heitman as the manager.
Some investors viewed the effort as a way for Heitman to retain control over the assets. Most were insulted when Mr. Perlmutter exploded in an angry diatribe at pension fund representatives that opposed the proposal.
Meanwhile, Heitman -- at the behest of Pennsylvania State Employes' Retirement System and the pension funds for AT&T Co. and Bell Atlantic/NYNEX -- explored rolling up regional malls it manages for the three institutions into a REIT that Heitman would manage.
But the three decided against the rollup proposal last month.
There are, however, numerous public REITs that would pay top dollar for the properties, and as word filters out about the proposal, the offers soon will follow.
A similar rollup proposal by real estate money manager The O'Connor Group was snatched away by The Simon DeBartolo Group, the largest mall REIT. Heitman is not expected to try and retain the business.
Representatives from all three pension funds declined to discuss why they turned down the rollup proposal, but it is believed they realize existing public REITs could pay more for the properties than could Heitman.
REITs can pay more for the properties because they have a lower cost of capital than most private investors.
In addition to high-yield real estate and REITs, Heitman is focusing its attention on international investing, said Mr. Claeys. A Heitman subsidiary recently opened offices in London and Warsaw, and it has established a joint venture in Argentina.
"We have not publicized some of our international activities," said Mr. Claeys. "We are (particularly) active in Central Europe.
"We have raised money from clients for these strategies."
Heitman also announced that David Feldman, former chairman and chief executive of AT&T Investment Co., has joined Heitman's board of directors.
"He is a marvelous addition to our organization," Mr. Claeys said. "He will provide guidance on how to treat clients and on expanding our international operations."