NEW YORK - J.P. Morgan Investment Management Inc. is claiming the top spot among pension real estate money managers with its intent to buy O'Connor Realty Advisors Inc. for an undisclosed sum.
By its calculation, J.P. Morgan will have more than $14.5 billion of tax-exempt assets under management when the purchase of O'Connor is complete, placing it atop Pensions & Investments' ranking of the largest pension fund real estate money managers, as of June 30.
That means it would surpass the $14.3 billion that ERE Yarmouth had under management. But at the end of the third quarter, ERE-Yarmouth claimed total tax-exempt assets of $14.6 billion, said a spokesman.
O'Connor Realty Advisors is a partnership, and the partners will receive a share of the proceeds from the sale, according to partner Julie Brenton. Jeremiah W. O'Connor Jr. is the chairman of the holding company and biggest shareholder in O'Connor Realty Advisors.
A majority of the 32 O'Connor professionals will go to work for J.P. Morgan, Ms. Brenton said.
Terrance Ahern, a partner with Cleveland-based real estate consultant The Townsend Group, said Mr. O'Connor's decision to sell the real estate money manager is consistent with a developing philosophy that core real estate investing will be done in the public markets and high-yield real estate investing will be executed privately.
"You see managers moving to a balanced investment strategy . . .," said Mr. Ahern. "The alternative is to become an allocator of capital and identify opportunities and place money with operators.
"I suggest this is where he (Mr. O'Connor) has decided his fit is going to be," said Mr. Ahern. "This is consistent with that school of thought."
The sale of O'Connor Realty Advisors comes shortly after the failed attempt by Mr. O'Connor to restructure the Retail Property Trust, a $1.1 billion private real estate investment trust it managed for pension funds.
Simon DeBartolo Group Inc. in September hijacked the assets from O'Connor, who had proposed a roll-up of the fund and two other shopping center portfolios into a public REIT (P&I, Sept. 15).
The deal with O'Connor also does not include the Argo Partnerships, a pair of opportunistic funds with more than $650 million in assets. O'Connor Capital Inc. and J.P. Morgan Capital Corp., a merchant bank, serve as general partners of the funds.
Upon the completion of the transaction J.P. Morgan will have one of the broadest real estate product lines to offer its clients.
J.P. Morgan's offerings included mortgage and equity separate account investment vehicles, core real estate as well as opportunistic real estate and management of REIT portfolios.
The property mix includes allocations to industrial, offices, apartments, single-family housing, retail and timber/agriculture.
The addition of O'Connor Realty Advisors enhances J.P. Morgan's presence in retail properties and in the separate account business, according to Tin Heise, managing director and head of J.P. Morgan's real estate group.
"We have been underweight in retail for several years," said Mr. Heise. "Retail looks like it may be becoming attractive.
"We have been studying retail for the last couple of years and watching the market carefully," said Mr. Heise.
"We are in the early stages of formulating an investment strategy," he said.
"So to bring in a talented group with expertise in retail would be valuable as well."
The relationship between J.P. Morgan and J.W. O'Connor Inc. is longstanding and contributed to the decision between the two parties. The discussions about selling the unit preceded Mr. O'Connor's attempt to roll up the Retail Property Trust, said Mr. Heise.
"It was a natural evolution of a close relationship with Mr. O'Connor," said Mr. Heise.
"As our relationship has grown, his plans for his business have been changing," said Mr. Heise. "It became apparent that he was putting considerable focus on the opportunistic side of the business.
"We are committed to core real estate," said Mr. Heise. "He (Mr. O'Connor) decided that it wasn't a business he was committed to for the long term.
"It was advantageous for both parties."
The addition of O'Connor caps a month of activity that saw J.P. Morgan enhance its identity in the alternative investment category. Morgan's money management subsidiary acquired the private equity team of AT&T Investment Management Co., an area in which it had a token presence (P&I, Oct. 27).