An Architect of Deals For the Underserved Investor

(Real Estate Weekly)

December 28, 2005 - Back when he was studying architecture at Princeton, Ted Gamble had an experience that made him realize that perhaps he wasn't pursuing exactly the right career path.

He possessed a passion for architecture, but while interning at an architecture firm during a summer break, he also found himself gripped with frustration and disappointment when a deal to develop a large mixed-use complex in the Midwest that his coworkers had designed unexpectedly fell through. By his reaction, Gamble sensed that he was one of those types for whom the realization of their architectural vision was just as important as their receiving financial compensation for the work. Perhaps, he reasoned, he would be better off trying his hand at deal making instead, where he could have more influence over the outcome.

"I realized that if I found it unduly frustrating to see a deal fall through, maybe I should focus on the part of the enterprise where I could exert more control over whether that deal closes or not," Gamble said. "In hindsight, I realize that nobody can ever have full control over a deal, but that was the naive thinking of a younger man."

Gamble didn't abandon his original academic path, but earned his masters in architecture at Harvard while also getting an MBA. The degrees grounded him in the physical side of real estate and also finance, disciplines he merged by going into real estate investment.

"It seems like there are a lot of young people today who have that same kind of background as I did in architecture and finance, but in my day that wasn't really a typical combination," Gamble said.

Gamble got off to a more intense start than most do however, beginning at Morgan Stanley right out of graduate school. He worked his way up quickly to become a principal of the firm by the mid 80s, structuring and managing the investments in real estate Morgan Stanley made in tandem with institutional capital partners.

But the massiveness of Morgan Stanley and the diversity of its investment activities didn’t allow Gamble to focus as exclusively as he would have liked on real estate investment geared to a specific category of investor he felt was underserved; wealthy families and individuals.

Having built relationships with a number of prominent families and high net worth individuals both in the United States and abroad, Gamble observed that there was scant opportunity for them to invest directly as little as $250,000 to a few million dollars in institutional quality commercial real estate. According to Gamble, investment in REIT stock is not the answer because he says that its performance is tied too closely to the stock market as a whole in the long term, a correlation that investors are typically looking to avoid by investing in real estate.

"I wanted to craft my own firm," Gamble said. "The way a lot of individual investors were able to invest in real estate was so informal. It was like 'I happen to know someone who has a cousin who happens to be looking to buy a property and needs co-investors.' That was the type of loose, informal arrangement that was available to most private investors." Using the same discipline with which he wielded institutional investors' money while at Morgan Stanley, Gamble started The Prescott Group, a firm that invests its clients’ capital in a diverse array of property types, such as office, multi-family and retail. Investing in partnership with institutional capital, the firm has been able to buy portfolios of property well over the $100 million range that offer the advantage of geographic and product type diversity.

The firm closed on two such portfolios recently, a collection of multifamily properties located in the Gulf Coast region and a group of 12 retail properties located throughout the US. The latter deal was one that Prescott managed to acquire in an off market transaction, the type of opportunity that Gamble described as invaluable to the firm's strategy of securing real estate at a relative bargain compared to today's climate of rising value.

"We work with a network of operators who work with us in managing the day to day operations of our properties," Gamble said. "They've given us so much information on available property that other firms just don't get and consequently we are able to snatch up little-known portfolios."

The sensibilities that Gamble undoubtedly gained from his studies as an architect come out when he describes the due diligence that goes into such an acquisition.

"There are so many things that you have to check when you buy a portfolio like this," Gamble said. "You have to do environmental studies, physical inspections of the properties to make sure they are in fact what they were marketed as. You need to check the rent roles. This business is a lot like a quote Ronald Reagan used to describe his dealings with Gorbachev - trust, but verify."

To expand the firm in an accelerated manner so as to expand Prescott's reach amid a real estate boom time, Gamble forged a partnership with oil magnates, the Getty family. While the family invests side by side like Prescott's other clients do, the Gettys also purchased an ownership interest in Prescott itself, allowing it to engage in a larger volume of investments.

"Having the Getty family invest in your business is a tremendous testament to our firm," Gamble said. "Besides all the successful projects we've done, when a group of the Getty family's stature and success wants to partner with us, it has the natural effect of making the firm look that much more attractive to other investors."