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Celebrity is their game
By Ricki Fulman - Pensions & Investments
November 25, 2002 - Call them celebrity buildings or trophy buildings.
They're the high-profile, architecturally exciting buildings in big cities that Shorenstein Co. LP targets for its niche investing strategy, which has been paying off with juicy midteen returns and higher.
"The key to success is to concentrate on what you do well," emphasized by Richard Chicotel, chief financial officer at the San Francisco-based firm. Founded in 1992, the firm now has $5 billion under management and is investing its sixth and largest fund of $609 million, Shorenstein Realty Investors VI.
Among the high-profile properties the firm owns are the John Hancock Center, 500 W. Monroe St. and Prudential Plaza, all in Chicago; Two Liberty Place, Philadelphia; and 450 Lexington Ave., New York. The Chicago Prudential property, acquired in 1999, is for sale. The funds are value-added funds and target returns in the mid-teens. The firm invests 10% to 15% of its own capital in each fund; it committed $75 million to its latest fund. Endowments, foundations and high-net-worth individuals have been the funds' investors, although Shorenstein might also target pension funds when it raises its next fund in 2003. Investors include the $10billion endowment of Yale University, New Haven, Conn; $8.4 billion endowment of Princeton University, Princeton, NJ; $5 billion endowment of Dartmouth College, Hanover, N.H.; and $4.7 billion MacArthur Foundation, Chicago.
"We buy the buildings, and fix the problems-we're the dirty-fingernail guys. Later we sell into the market-usually holding a building between three and eight years," Mr. Chicotel said. "We focus on cash flow, but also look for a creditworthy tenant roster that has a diversified rent roll. We want properties with strategic leasing capabilities in up and down markets so that the building stays full no matter what happens in the economy.
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