Getty Trusts Back Real Estate Push To Wealthy

(Fund Fire)

by Thomas Coyle

November 18, 2004 - Two Gordon P. Getty family trusts are teaming up with The Prescott Group in a bid to bring institutional quality real estate investments to the high net worth space. The trusts have pledged to support Prescott, a New York-based real estate merchant bank, in its plans to direct more than $400 million to real estate-related acquisitions, investments and partnerships in 2005.

"This is a challenging area for private investors," says Theodore R. Gamble Jr., Prescott's managing director and founder. "They're told to get involved with [alternative investments], but then they find that the rigorous analytics typically associated with [more traditional] investments isn't available." Gamble says that Prescott's new partnership with the Getty Trusts allows it offer rich private investors "unique opportunities to acquire property assets with attractive yield characteristics" like those previously available "only to major institutional investors and sizeable private investment entities."

The Getty Trusts' participation is vital to Prescott's plan, says Gamble. "They're very respected investors in the private client world," he says of the trusts that manage the wealth of one branch of a family made famous by the twentieth century oil baron John Paul Getty. "And they're investing at the corporate level as well as at the transaction level."

Gamble declines to say how much the Getty Trusts have committed to Prescott. But he says it's enough to bring "in the capital to allow us to expand our service to the private client market."

Gordon Getty says his family's trusts' commitment to Prescott emphasizes their view of real estate as essential to diversification. 'We believe Prescott has an innovative business model and a strong, experienced team that will help major individual investors reap the benefits of direct real estate investment via a product that we believe can have significant market penetration," he says in a press release.

Prescott's move could be well timed. Dennis Yeskey, director of Deloitte Consulting's real estate capital markets practice, says that real estate is "leaving its niche dropping behind" as a breakout decade for property markets draws to a close. In his view, real estate's appeal to institutional investors in the past few years comes down to its strong performance and low correlation to stocks and bonds - characteristics Gamble also points to as selling points.

"Real estate has outperformed other asset classes during the most recent downturn and the recovery, with returns far exceeding those available in competing asset classes and with minimal volatility," says Yeskey. And he adds that real estate is likely to continue finding favor with institutions, especially pension funds, as they search for predictable cash flow in the face of an aging population and, possibly, subdued retums from traditional investments.

Not that real estate investing is new to the wealthy. Richard Tanner, president and founder of Cleveland, Ohio-based wealth manager Ownership Advisors, reckons that 99% of the nation's high net worth individuals have real estate holdings beyond their home. But the bulk of that apparently overwhelming percentage is devoted to secondary residences, viewed by their owners as investments only in the broadest sense of the term. And those direct real estate investments that aren't ear-marked for personal or family use are apt to be the result of happenstance, not a systematic approach to real estate investing. "They often get involved informally," says Gamble. "They know the owners of a property and so they invest."

Gamble says that real estate investment trusts (REITs) are promising vehicles, with "good research available and some strong underlying companies." But over time, he adds, "REITs primarily track the performance of the rest of the equity market."

For clients with $20 million or more to invest, Prescott takes a highly consultative tack that takes into account the investor's unique needs and traits when recommending direct real estate investments. "[We offer] private clients and their advisors a comprehensive approach to real estate investment," says Gamble. "Our strategy is to work with wealth managers to help meet the real estate investments needs of their client base." In practice, the result is would be what Gamble calls a "separate account" of real estate holdings with risk-return characteristics that "a range from very secure, long-term leases to higher-yielding, opportunistic investments, and everything in between."

For clients who want to invest much less - roughly between $250,000 and $500,000 as minimums - Prescott offers transparent property-asset portfolios that, says Gamble, "provide superior risk-adjusted returns." Prescott will market these vehicles, some structured as partnerships, through intermediaries such as brokerages, private banks and multi-family offices.