Three hundred years of history should provide some insights to the current–frightening but relatively brief–market turmoil. In fact, London-based Grosvenor–an umbrella group of development, investment and fund-management businesses–dates back to 1677. Seems one Sir Thomas Grosvenor took a bride who happened to be sitting on 500 acres of prime real estate. A few hundred years of cooking time and some smart management later, the Grosvenor portfolio is valued now at roughly $23 billion. Since the 1950s a player in the North American market, the concern acquired the real estate services branch of Legg Mason in March of 2006, rebranding it Grosvenor Investment Management US Inc. Leading that charge is GIM president and CEO Douglas S. Callantine. Bumps in the road notwithstanding, the Philadelphia-based Callantine is set on doubling GIM’s piece of the Grosvenor portfolio–from a current count of $1.7 billion to $3.5 billion–in the next five years. In an exclusive interview, he gave us some history and mapped out the path he intends to take. Was the fuel here always European-family capital?

Callantine: Not necessarily. Some were European families, some were European institutions, and certainly in more recent times it spread to capital from North America, Asia and continental Europe. Can we assume that that mix of investor types outside of Europe was largely at GIM’s doing?

Callantine: No, since the original US and Canadian investments were made in 1952 and 53. In that case, Grosvenor was using the proprietary assets of the family to buy specific properties in North America, but over the past 30 or 35 years, a number of other families and institutions decided that there was an opportunity to co-invest and become partners with Grosvenor in various projects, and in essence that was the birth of the fund-management or third-party investment management business. And your plan now is to double the US portfolio?

Callantine: We presently have assets of about $1.7 billion in the US market, and that comprises investors both in the US and overseas investing here. We intend over the course of the next five years to take our asset size to about $3.5 billion. How?

Callantine: We’re going to do more of the same in terms of investing on behalf of separate-account clients in either core, value-add or opportunistic strategies that presently exist. The biggest change is that we expect to offer more commingled-fund products over the course of the next five years. We have three existing funds and look to expand the family of funds here in the US, adding one to two funds a year. And those strategies will depend on where we see the market opportunities at any point in time. For example?

Callantine: For example, we’re working on a product now regarding multifamily projects in the New York metropolitan area. It hasn’t launched officially yet but we would hope to do so in the first quarter of this year. Beyond that, we’re monitoring what’s going on in various markets and opportunities where we might provide an attractive investment product to our clients. What’s your typical co-investment structure?

Callantine: Typically, we’re going to invest somewhere between 5% and 10% of the equity capital raised in a fund. In some cases it might be slightly higher. And, it depends on the particular fund strategy, but the leverage could range from a low of 50% to a high of 65%. So the corresponding capitalization of those funds could be up to as much as a billion dollars. What’s your hold?Callantine: It really depends on the client, so there’s no set strategy. Generally, I would say we’re more in the five-to-seven-year time frame. But we have some investment structures that will go shorter and some that are much longer. Are the European holds typically longer?Callantine: Traditionally that’s true. More of our product in other regions of the world tend to be flagship–core–funds, and they tend to have 10- or 12-year lives plus extension rights beyond that. And it does reflect a mindset that European and other investors have had, although even that has changed as real estate has become global. People recognize that it’s not so much duration of investment term as much as it is achieving your expected returns and harvesting those assets when it makes sense to do so. Tell me about your work in the Middle East.

Callantine: Over the past eight or nine years, we’ve spent a fair amount of time working with Middle Eastern investors who in many cases structure their investments according to Islamic–Shari’ah–compliance, which creates some additional mortgage-finance and tenant-use criteria. Over that period of time, we’ve probably been involved in more than half a billion dollars in transactions in residential, office and seniors-housing. And the office sector can very problematic. While so much of our US office stock has a financial-services tenancy, they can be excluded from Shari’ah acceptability. It creates challenge and opportunity. To what extent are such relationships based on your international parent?

Callantine: Interestingly, we established these relationships before we were part of Grosvenor, but they also have had some relationships with Middle Eastern investors prior to our acquisition. Any cross-marketing?

Callantine: The strategy is to provide crossover between the funds. Some of our people in other regions have had experience with Middle Eastern investors on more conventional structures but have not had Shari’ah experience, so we’ll have to work closely together to make sure we can achieve the structure some of those investors want in other regions of the world. It’s a tough market out there. Are you taking a bit of a wait-and-see?

Callantine: In the current markets you certainly need to exercise a degree of caution, but we think there are still opportunities here. This New York product I mentioned is one of those sectors where we believe there’s strength in the market and the demographics and demand will be strong over an extended period, so it makes sense to proceed. Where there’s distress there are opportunities, so the challenge we in the investment management community have is to assess properly whatever those risks might be and implement a plan that will achieve the objective. And if the current situation runs wider or deeper, will it impact the five-year plan?

Callantine: It might extend the growth to the latter part of that five-year period, but what’s going on in the market today is evolutionary, and every day we read something new that may temper our enthusiasm or give us more reason for optimism.

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