DALLAS-As one of the nation’s largest privately owned companies, Sammons Enterprises Inc. has invested in a variety of industries including commercial real estate since its inception in 1938. Its newest strategy regarding property investing is a shift from its previous strategies and unique to the sector overall.

The firm, which has assets approaching $50 billion, recently launched a new subsidiary, Compatriot Capital Inc., to make direct investments in real estate operating companies (REOCs). The subsidiary is capitalized to build a business with a net equity value in excess of $1 billion within 10 years.

Heather Kreager, president of Sammons Enterprises, serves as chairman of the board for Compatriot, while Paul Rowsey serves as president and CEO of the subsidiary. Rowsey was previously with E2M Partners, a local private equity firm that invests in commercial real estate on behalf of individual and institutional investors.  

Sammons’ previous commercial real estate investments will be funneled into Compatriot. For example, the firm’s previous investment in local commercial real estate firm KDC Holdings will be a core holding.

Here, GlobeSt.com talks with Kreager about Sammons’ newest subsidiary and how it fits into the commercial real estate sector.

GlobeSt.com: Sammons Enterprises just launched a new subsidiary, Compatriot Capital. How does Compatriot fit into the Sammon’s investment strategy?

Kreager: We’ve always had some involvement in real estate, but with Compatriot we are taking a completely different approach. With our previous strategies, we’ve focused on buying and selling individual assets. Through Compatriot, we are committing to a strategy to build a business. When we invest in these operating companies, we aren’t investing with an eye to an exit. We don’t have a timeline to have a realization within so many years, and a lot of private equity is built around that. The Sammons executive committee and the board has approved the investment strategy and the plan, which allows us to invest in five to eight of these platform companies over a three to five-year period.

GlobeSt.com: Sammons has appointed Paul Rowsey to lead the charge at Compatriot. What makes him the best person for the job and what is his focus?

Kreager: Internally at Sammons, when we discussing the strategy and our desire to have a bigger presence in real estate, we knew that getting the right management team was probably going to be the biggest challenge. We didn’t have any one in-house who was dedicated to that space. We’ve known Paul for 15 years or more – he is the person who suggested that the KDC investment. Besides being a very experienced real estate professional, Paul has like-minded values and a similar approach to building a business. Paul’s initial objectives will be identifying the operating companies in which we will invest.

GlobeSt.com: The Compatriot strategy to invest directly in real estate operating companies is unique – most private equity firms choose to joint venture on specific development or acquisition deals. Why did Sammons choose to go this route and why don’t more private investors employ this strategy?

Kreager: I don’t know why more investors don’t pursue this strategy. We expect Compatriot to look and feel like the other Sammons subsidiaries, which invest in multiple operating companies and achieve growth over time as those companies are successful in implementing their business plans. We like real estate and think it should be a core business for us. Real estate is cyclical though, and we wanted to build a business where we have flexibility to invest in various classes of real estate when the time is right rather than being compelled to do what deals are available, like most private equity firms. When Compatriot invests in an operating company, that company’s management team will run it. Compatriot will deploy money into the different companies to help them grow. With this model, we can have a more cohesive approach. For Sammons and our long-term view, we think this is a good way to get the right people who know the space, help them build sustainable businesses, and as deals are harvested, they’ve got a plan of how to redeploy that capital comes back rather than just looking for the next deal.

GlobeSt.com: Sammons has previously invested in a real estate operating company, Dallas-based KDC. How would you describe that investment? Is the KDC investment a template for Compatriot’s future investments?

Kreager: KDC is the type of company that we would be looking at. They have different revenue streams and an experienced management team.  They are a quality business, and we are looking for other quality businesses. We invested in KDC in 2008, and from the Sammons’ perspective, everybody feels like it’s been a very good partnership.

GlobeSt.com: What is the biggest challenge in implementing the Compatriot investment strategy?

Kreager: When we first started discussing this strategy, my first challenge was finding the right management team and now the next step is finding the right operating companies. We want to make sure they feel Compatriot is the right partner for them. The diligence will be as much on the people, as the company and its assets. We will definitely do a platform transaction this year, whether we can get two closed, I am not sure. We want to be very thoughtful and think about how the companies fit in the overall strategy of Compatriot and if they’re the right fit.

GlobeSt.com: Sammons is one of the largest private investment firms in the nation, and many would describe it as a private equity firm. What are your thoughts on private equity investment in the US? Where do you see opportunity, both in the real estate sector, as well as other sectors?

Kreager: We’re not driven by the idea that we have to have a return on our capital at a certain time. We’ve done private equity, but our preference is to be an active investor and be involved in operating companies. Our concept is not going to work for everybody. The challenge is finding an operating company that wants a collaborative relationship. Our model gives companies another option in the world of partnerships. It’s a different approach, but I think there is a place for it in the real estate sector. And I fully anticipate that the operating companies will continue to have other capital partners for specific deals.