Fortress Investment Group’s co-chairmen, Peter Briger and Wesley Edens, may not be the first names that come to mind when you think of the multifamily industry, but make no mistake: They control one of the most influential companies in the real estate world.
Wesley Edens & Peter Briger
Through investments made by both Fortress’s credit business, headed by Briger, and its private equity business, led by Fortress founder Edens, the company has become a major power in the multifamily space as an investor, lender, and owner/operator. The New York–based firm not only has a large footprint in the United States but also significant operations in Europe and a new office in Shanghai focused on senior-living investments in China. Fortress has been in existence only since 1998, but in that short time, the firm has inked some of the largest apartment deals the industry has ever seen. Currently, the company has $47.8 billion worth of assets in its portfolio. On the credit side of the business, Fortress has invested in more than 25,000 units using four main investment avenues: distressed debt; preferred and equity investments; opportunistic financing (rescue loans for owners in stressed, distressed, or out-of-favor sectors); and distressed securities.
Perhaps the most notable deal in recent memory is the acquisition of CWCapital by rival lender Walker & Dunlop. Fortress sold portions of CWCapital for $80 million in cash and $140 million worth of stock in Walker & Dunlop, making it the largest shareholder in the company, which had $7.7 billion in loan originations in 2011.
And don’t forget the landmark deal in late 2010 that gave control of the 3,221-unit Parkmerced community in San Francisco to the investment group. Described as a “city within a city” by Anthony Tufariello, managing director of Fortress’s credit funds branch, the property is among the largest multifamily communities in the Western United States, and it’s only getting larger. Fortress plans to build an additional 5,600 new units on the land, in a city with a very high barrier to entry.
Fortress owes its effectiveness as a real estate investor to its ability to buy both debt and equity. “We love multifamily right now,” Tufariello says. “There’s been a dramatic shift in real estate recently, and with multifamily’s improving fundamentals, we still think there are more opportunities to invest.”
Fortress also owns Nashville, Tenn.–based Brookdale Senior Living, the largest owner and operator of senior living communities throughout the United States, and Lake Oswego, Ore.–based Holiday Retirement, the largest private owner and operator of independent-living communities for seniors. Fortress’s interests aren’t limited to the senior sector, however; the firm has a hand in almost every asset type in residential and commercial real estate.
Perhaps more important a criterion than sector in choosing where to invest is fit. “Where there’s opportunity and the right location,” Tufariello says, “that’s where we look for near-term growth potential.”
It would be hard to have a list of the most powerful people in multifamily and not include a man who proclaims himself the “Grave Dancer.” Zell’s industry track record and some of the brilliant ways he’s managed to turn a profit make him a force of nature never to be taken lightly by friends or foes alike. Just ask Harry Macklowe. In 2007, Zell’s Chicago-based Equity Residential sold $7 billion worth of assets from its office portfolio to New York–based Macklowe Properties. Unfortunately for Macklowe, it wasn’t long before the debt from the sale went into default, forcing him to sell three prime Manhattan apartment towers to raise funds. Right on cue, Equity swooped in and bought the properties at a 50 percent discount on what Macklowe had paid for them.
More recently, Zell was blocked from buying a minority stake in Denver-based rival apartment owner Archstone by majority stakeholder Lehman Brothers, but still managed to grab a handsome walkaway fee of $150 million at no more than the cost of some legal fees.
According to David Bragg, director of REIT research at New York–based Zelman & Associates, Zell positioned Equity Residential to come out of the downturn near the top of the pack by putting the right people in place to run the company on a day-to-day basis, including naming David Neithercut CEO in 2006.
“Over the last few years, it’s become clear that [Equity] has become above-average acquirers among their apartment REIT peers,” Bragg says. “They came out of the downturn as among the most aggressive acquirers of some very attractive assets.”
Bob Faith founded rising powerhouse Greystar in 1993 in Houston. Prior to forming Greystar, now based in Charleston, S.C., Faith made his mark on the industry with other notable names, as well. Starting in 1986, he earned his chops in the real estate business as a partner at Trammell Crow Co. Later, he went on to co-found Greenwich, Conn.–based Starwood Capital Partners, a now publicly traded investment firm with almost $20 billion in assets under its management. And somehow, Faith even found time to serve as South Carolina’s secretary of commerce, from 2002 to 2006. Since starting Greystar, Faith has seen his company go from a small Texas apartment manager to the largest multifamily manager in the United States. Currently, Greystar has a management portfolio of more than 192,000 units. When you consider that the firm has added 40,000 of those units since 2009, you begin to realize just how aggressive Faith has been at a time when the rental market has enjoyed booming growth—and stiff competition.
“The business is well positioned given his willingness to reinvest and position the company for long-term growth,” says Chris Riley, managing director of asset management for Greystar. “His commitment to being the best service provider coupled with a sound investment fiduciary have positioned the company well for long-term success.”
The nation’s largest manager is staking a big claim on the acquisition and development fronts. Since January 2011, Greystar has acquired 7,317 units, comprising more than $1.1 billion worth of total capitalization, and has had nearly 5,000 new starts, with most coming in the Dallas, Houston, and Washington, D.C., metros.
Faith also helped his company grow during the housing crisis by capitalizing on the foreclosure wave that has hit across major markets, managing REO properties.
“It’s been a good year,” Faith says of 2012. “We’ve focused on management, development, and investment management, giving us a balanced business model. We’ve added a lot of new clients and have continued to grow and acquire in new markets, expanding our geographic footprint.”
Spoken like a man whose presence will only grow in stature.
Co-founder of commercial real estate brokerage giant Marcus & Millichap Real Estate Investment Services and chairman of Palo Alto, Calif.–based multifamily REIT Essex Property Trust, George Marcus has been a heavyweight in the industry since 1971. Like Zell, Marcus was one of the key figures behind the scenes at a firm (Essex) that emerged from the housing downturn as a front-runner in the industry thanks to aggressive, high-value apartment acquisitions. But Marcus’s influence goes back earlier than even 41 years. He got his start in the late ’60s selling investment properties at Santa Ana, Calif.–based Grubb & Ellis before deciding to start Calabasas, Calif.–based Marcus & Millichap with William Millichap.
In 1971, he formed Essex Property Corp., which went public in 1994 as Essex Property Trust, a firm that now owns 161 communities along the West Coast.
And it’s not just his role in overseeing an elite REIT and brokerage giant that makes Marcus a pivotal icon in the multifamily world. It’s his knack for getting deals done. His brokerage firm is attached to a staggering number of industry transactions. Last year, the firm closed 5,085 transactions, making it the largest industry brokerage firm by annual sales volume.
According to Hessam Nadji, managing director of the company’s research and advisory services arm, M&M conducted $17 billion in transactions last year and is on track to hit the $20 billion mark by the end of 2012, with a 15 percent to 20 percent increase in volume on the horizon. And a lot of the credit for this success is due to Marcus’s business savvy.
“George is well known for his strategic thinking,” Nadji says. “He has a knack for looking at the big picture and coming up with the right decision. And it’s always based on the fundamentals of a deal.”
Recently, the Tax Credit Group of Marcus & Millichap reached the $3 billion mark in sales of low-income housing tax credit (LIHTC) properties, a business line founded in 2001.
And as if serving as co-chairman and director of M&M weren’t enough, the indefatigable Marcus is also a member of the Washington, D.C.–based public policy organization Real Estate Roundtable, as well as the Policy Advisory Board of the University of California, Berkeley, Haas School of Business Fisher Center for Real Estate and Urban Economics.
Sworn in as the 15th secretary of the U.S. Department of Housing and Urban Development (HUD) in 2009, Shaun Donovan has seen his fair share of action over the past few years. Namely, he’s been forced to manage the largest expansion in lending capacity in the agency’s history, in the midst of one of the worst financial crises in generations. But Donovan was certainly no stranger to HUD. He served as deputy assistant secretary for multifamily housing at HUD during the Clinton administration and was acting Federal Housing Administration (FHA) commissioner for a time. And, notably, he was commissioner of New York City’s Department of Housing Preservation and Development, where he spearheaded the largest municipal affordable housing plan in American history.
“Obama elevated and reprioritized HUD by appointing the country’s leading urban government housing practitioner as its secretary,” says John Zeiler, CEO of New York–based Hudson Housing Capital.
As HUD secretary, Donovan has made significant headway in refocusing HUD’s mission to serve and spur the affordable housing industry. The agency has streamlined many processes and simplified requirements for deals using low-income housing tax credits.
In the market-rate world, the former lender of last resort became the hottest (and, at times, the only) ticket in town during the downturn, especially for construction debt through its Sec. 221(d)(4) program.
In fiscal 2011, the FHA saw about $12.4 billion in multifamily volume, a new record, after posting $11.3 billion in volume in fiscal 2010. Consider that in 2007, the agency processed just $3.8 billion in loans. What makes the explosion in its pipeline even more impressive is the fact that HUD is perennially understaffed, a problem compounded by its shrinking budget.
And then there was that little single-family meltdown to contend with as well. Since taking office, Donovan has taken on some powerful interests in his attempts to stabilize the nation’s housing market. Just this past spring, he introduced four bills to the Senate designed to ease regulations for underwater single-family borrowers. And he recently drafted a more-than $20 billion mortgage-fraud settlement to aid homeowners who were duped by big-bank lenders.
“If I told you exactly what I thought of Shaun’s work on this, it would be so good that people wouldn’t believe me,” said Iowa attorney general Tom Miller in an interview with Politico. “I’ve never seen such an effective, professional relationship with the states.”