Recently, Geoffrey Dohrmann, president and CEO of Institutional Real Estate, Inc., spoke with Bradford Howe and Bleecker Seaman, co-chief executive officers of Broadshore Capital Partners, about the firm’s new name, structure and strategy. Following is an excerpt of that conversation.
Guardian Life has been an investor in your business since 2010. What was the original reason for bringing Guardian into the business? And why is Guardian taking a majority stake in the business now?
Howe: Prior to 2010, when Guardian made its initial investment in our firm, the business was reliant upon a real estate operating platform that housed acquisition and asset management functions. This model had its limitations and was not ideal for growing an investment management platform focused on serving client objectives. As we looked at the future of our investment management business, we felt strongly that we needed a capital partner that could not only support us through co-invest and financial resources, but also in making a transition from what the platform was to where it is today, with internal resources housed within the investment management business performing the investment and asset management functions that drive value for our clients. In 2010 we had 16 employees; by the end of 2019, we anticipate having approximately 35. Importantly, I believe it is a strong endorsement of our firm for Guardian to recommit to our growth by backing management to make this transformational investment. We have a shared vision for the future and are looking forward to executing on our growth initiatives.
Seaman: In 2010, we were coming out of the GFC and looking ahead to grow our business. We wanted a stronger financial base, and Guardian, which at the time had $50 billion under management, certainly provided that. They have been a strong co-invest partner with us, so they have been able to partner alongside our investors in our value-add strategies. I think they view the opportunity to partner with management and take ownership of this business as a cornerstone to their broader asset management strategy.
How has this deal been structured from an ownership standpoint, and how will co-investment capital be structured, moving forward? Will the people doing the deal also have an interest?
Howe: Prior to the transaction, Bleecker and I were the only two members of management that owned a position in the company, and we owned a combined total of between 5 percent and 6 percent. With this transaction, the management ownership increased to 15 percent, with an intent to increase management’s ownership to 20 percent over the next few years. Not only has our individual stake increased, but it has been broadened to a wider group of our management team, so there is more ownership through the senior ranks of our company. In addition to supporting management’s ownership of Broadshore, Guardian and the management team will organize co-investment vehicles with significant capital that will allow us to make co-investments in projects or programs where required by our investors.
What is changing, then, aside from the ownership structure and the company name? Will there be changes in staff or leadership?
Seaman: We are happy that our whole team — 28 people — will stay in place with Broadshore Capital Partners. What will change as we continue to grow our business is that we will be strategically adding people as we expand our platform. One of the opportunities for us working with Guardian and operating as Broadshore Capital Partners is to continue to grow both our existing strategies, as well as selectively add new product lines, and as we do that, we will add key resources to build out those new business lines.
How is the strategy going to evolve over time?
Howe: There are three components to our strategy. First, we are committed to the value-add space and plan to continue our focus on adding value at the asset level — creating value through growing net operating income. As Bleecker mentioned, to do that you need to have specialized expertise in the areas in which you invest. So, second, we will continue to invest in our people and our resources to ensure we have capabilities to manage operating intensive investments. Finally, we will maintain a very strong client focus and cater our products to specific needs of clients through separate accounts and programmatic joint ventures. In each case, we structure these around client needs, and that is very different from a big, blind-pool fund, where the client doesn’t have a say. We are more client-centric and, throughout our organization, we want our people to have a fiduciary mindset, so everything we do is designed around what is in the best interest of the client.
Seaman: I think a good example of how we plan to evolve our strategy is represented by how we have grown our multifamily investing business. In 2013, we brought on a leader for that business and then added to the team. Since then, we have done over $1 billion in investment activity in the space and have already realized on many of those investments. We moved into the space based on a research-supported view, and it has been borne out based on the success experienced in our workforce housing strategy. We plan to use a similar methodology both to expand our existing business activities, such as hotels and debt, as well as new areas including senior housing, where we have recently assumed responsibility for a takeover portfolio. The support from ownership to build our business this way is critical.
What other opportunities do you see as we head into 2019? You have talked about the long-term vision for the company, but what is the short-term vision for your clients?
Howe: In 2018, we opportunistically sold almost $750 million of assets from our portfolio, so we have been an active seller. We believe we are late in the cycle, and that leads us to focus on areas where the long-term trends support the investment strategy — so, clearly, multifamily continues to be a focus for us, along with senior housing, which both enjoy favorable long-term trends. Hospitality is another investment area on which we are focused, and it also has strong demand dynamics, which extend beyond simply economic growth and include strong growth in travel, driven by demographics (aging population with discretionary capital) and increased air- lift. We are also very active on the debt side today and want to continue to be an investor in that space, but, in general, we will continue to be cautious.
Raising capital probably has never been more competitive than it is today, and one of the first questions an investor typically asks is, What do you bring to the table that other investment managers don’t? Is there anything that really differentiates what you are doing from perhaps other people in the value-add space?
Seaman: Yes, the way we customize our programs for our investors. Focusing on separate account and programmatic joint ventures gives us the flexibility to work with our clients as it relates to a disciplined investment strategy, given where we are cycle-wise. Those programs allow us to monitor the markets and not feel compelled to make investments, to talk through investment strategy with our investors and take advantage of where we see opportunities in the market. We have the freedom to not feel compelled to be investing constantly in the marketplace, but be able to sell down and then wait for opportunities. Our client interaction can be very interactive, including biweekly pipeline discussions and frequent operating reviews, depending on how involved a client wants to be.
Howe: We have the benefit of having been doing this for a long time, with a 30-year track record as a real estate investment manager. Among the managers today, there are very few that have that length of experience. In addition, our senior management team, starting with Bleecker and myself, have worked together for a long time. Working together as a team, we have experienced multiple cycles. Finally, we are of a size where we can dedicate the resources to those specific client relationships. There are not many firms that have as long a track record, as deep a bench as we have, and the long-term relationships — some of the relationships we had when we started this business in 1990 are still very important relationships of Broadshore Capital’s today. We are very proud of that fact, and it is an important element of our success.
Given your 30 years of experience, what are some of the most important lessons you have learned, and how are you applying those to your strategy and to your operations?
Seaman: One lesson learned is really good communication with your clients — open and honest communication. As we went through the last downturn, everybody was confronted with challenges in their portfolio. One of the things we look back on, and where we felt we achieved success, was really having those open conversations with our investors and talking through issues. That is critical. And it speaks to some of the long-term relationships we have, because it is inevitable that you go through cycles, it is inevitable that you achieve some great successes, and it is inevitable that you will have some challenges, but maintaining that dialogue with your investors is crucial.
Howe: I said at the outset that, throughout our organization, we want our people to have a fiduciary mindset. We are working on behalf of investors that have many constituents who rely on the investment success of their portfolios, and we take that very seriously. First and foremost, we want our people to know that the job they are doing is more than just investing capital; it is investing capital on behalf of beneficiaries, policy holders or other important constituents.
What, specifically, does the new ownership group, Guardian Life, and management bring to the table?
Seaman: Consistency, for one. Given where we are cycle- wise, it’s significant that we have a partner that is taking an increased stake, versus a new investor coming into our business expecting to see immediate growth. Having a strong balance sheet through Guardian allows us to make the investments in people, as well as investments from a co-investment perspective. Guardian values the team we have in place and, while they are a majority owner, they want to maintain our independence. At the board level, Guardian will work with us and provide strong strategic insight, but Broadshore Capital Partners will continue to be an independent, stand-alone investment management platform. We like to think we offer the best of both worlds: having a large financial institution as financial support to our business, but being able to provide a boutique service level to our clients.