Brunswick: u201cYou have to spend half your time exploiting what you're good at and half your time exploring the new-new.u201d

NEWPORT BEACH, CA—Recent changes at Buchanan Street Partners are “just part of running a good business,” CEO Robert Brunswick tells exclusively. The firm has made six new hires in support of its equity platform, including an SVP to lead the firm’s growing acquisitions business; is expanding its equity platform and targeting opportunities to own directly and operate; purchased WorkScapes, a six-building creative campus here, as well as campuses in other markets; and has launched a new, high-yield, small-balance loan product to supplement its existing structured whole-loan and mezzanine-financing business.

In Part 1 of a two-part interview, Brunswick discusses the firm’s new focus in the new economy. In a future story, he will discuss its acquisitions strategy, including the WorkScapes purchase. What do the recent changes at your firm say about your focus and the industry?

Brunswick: You have to spend half your time exploiting what you’re good at and half your time exploring the new-new. Our evolution is an ongoing evolution. We’re looking to re-engineer ourselves to the new market and what we believe is coming down the road. The changes are purposeful and geared toward our vision of the future: stewards of capital and commercial real estate investments are going to be held in higher regard and in more demand. Those managers who provide a good service, appropriate risk/return yields, transparency and good investor services are going to be allocated more and more capital going forward as I believe real estate will continue to get an increasing piece of the investment pie.

Historically, real estate has garnered a smaller portion of an investment portfolio because of its lack of liquidity, non-transparency and cyclical nature, but this is changing. Everyone is in search of yield, and real estate is providing some interesting yield opportunities as well as a hedge against inflation—if we’re getting inflation. How is your platform evolving and why?

Brunswick: First, we are choosing to become more of an operator than an allocator. In the prior cycle, we allocated equity to partners. Today, we buy and operate our properties directly ourselves because we believe capital seeks those types of relationships. Thematically, what that really speaks to—not just in real estate, but in all industries—is what I would call disintermediation or eliminating the middle man. Properties are getting reduced in our industry, like all industries, so everyone is looking for where they can pick up yield and increase yield efficiencies. Money is looking for that operator—buying and running a piece of real estate.

Second, we’re choosing to move into the lending space. In the prior cycle, it didn’t pay to be in that space if you were a value-add investor, which we are Money was plentiful and cheap. But today, we think there are some interesting opportunities to participate in the debt side of the capital stack, which can provide some nice yield to investors as well as a nice subordination of equity. Capital is returning in a big way to debt, but most of it is returning to the commodity side of the debt table. We are a non-commodity provider of debt—that’s where we have chosen to invest. What else is changing for you?

Brunswick: In the last 12-18 months, we have made close to $400 million in investments and have gone about it a bit more stealthily than in the past. We’re purposely trying to be a little more under the radar vs. the prior model when we were more of a volume participant. Fewer better investors, fewer better employees, fewer better investments—that’s our motto. We want to have our profit margins go up dramatically on a per-employee and per-investment basis.

Stay tuned to the Orange County page for Part 2 of this story, in which Brunswick discusses the WorkScapes purchase, new hires and its restructured transaction with parent company TCW.