Buchanan Expands Investment Role, Exits Brokerage

Brunswick says that the company's business plan from the start has always called for Buchanan to become "solely a principal investment management firm" and that market conditions today present an opportunity for the firm to do so. He notes that Buchanan is already very active on the investment side of the business, having deployed more than $1 billion of equity from its own funds, commingled funds and separate accounts to invest in real estate valued at more than $4.5 billion over the past five to six years. The shift in direction will expand those investment activities and shed advisory services that Buchanan adopted primarily as a way to differentiate itself in the early days of the company—when market conditions contrasted sharply with those of today, Brunswick points out.

"When we started our business, capital wasn't a differentiator, so we needed to have other advisory services within our platform that could control transaction flow," Brunswick explains. Now, however, capital has become an important differentiator and the change in market conditions presents an opportunity for Buchanan, according to Brunswick and Tom Sherlock, senior managing director at Buchanan Street.

"Third party investment sales and mortgage placement no longer provide differentiation in this market," Sherlock says. "It is clear that what many are viewing as a negative—the deleveraging of commercial real estate—will actually be a plus as more institutional capital finds its way to commercial and multifamily real estate."

Brunswick tells GlobeSt.com that Buchanan is discontinuing its third-party investment sales and mortgage placement services immediately, although it has some existing assignments that it will complete. It is also discontinuing its Buchanan Storage Capital subsidiary, which provides advisory and investment sales services to self-storage owners nationwide.

Brunswick says that, in a nutshell, "We are going to take our financial and human resources and focus them on things where we can put our principal capital to work." The firm will continue to provide joint venture equity for investments, will provide mezzanine debt and preferred equity, and will buy existing notes—both performing and nonperforming loans. In the previous cycle, investing in debt was difficult because "the risk-return didn't make any sense," Brunswick comments. But in today's market, he says, "We can go down the capital stack—meaning participate as an investor in some of the debt traunches—because we like the risk-return that that brings to bear."

Buchanan is a mid-market player, operating in the range of assets valued at $40 million to $150 million, and plans to continue to invest in office, industrial, retail and multifamily assets, as well as some hotel and mixed-use properties. The company operates nationally, with offices in Atlanta, Chicago, Los Angeles and San Francisco in addition to its headquarters in Newport Beach.

In October last year Buchanan sold half of the firm to Los Angeles-based TCW, which is a wholly owned subsidiary of Societe Generale. TCW alone has about $130 billion of assets under management, but no real estate, so the deal with Buchanan represented its entry into real estate. For Buchanan, the affiliation with TCW moves the Newport Beach-based firm even faster toward its plans to become a completely dedicated real estate investment management firm, Brunswick points out.

Buchanan has already bought some notes, and Brunswick says that the firm expects to see more opportunities as the capital markets sort themselves out. "I believe that there is quite a bit of capital on the sidelines preparing to enter the market, but everybody is waiting," the Buchanan Street president and CEO says. "We are all going to see more opportunities soon as institutions purge their nonproductive assets."