Real estate students at
the Wisconsin School of Business received an educational visit from a leading player
in the industrial real estate arena, Brennan Investment Group (BIG), on Friday,
Dec 7. Chairman and Managing Principal Michael Brennan, who also serves as the
Executive Director of the James A. Graaskamp Center for Real Estate, was joined
by Managing Principal and Co-Founder Robert Vanecko to discuss a deal that proved
James Graaskamp’s time honored adage: “The successful
real estate deal is nothing more than a series of crises tied together by a
critical path.”
“All deals are sagas,” was Brennan’s lead comment
as he opened the discussion of Brennan Investment Group’s (BIG) two
recent mega-deals, the acquisition of a 20 property, $155M portfolio and a 19
property, $178M industrial portfolio. The presentation
“Start to Finish: The Acquisition of Two Major Industrial Portfolios” was a
detailed look into the creation of Brennan’s company, how his team sourced the
capital necessary for the two “mega-deals”, the unique structure of the deal,
and the successful closing of one of the largest industrial acquisition
portfolios in 2012.
Creation of
Brennan Investment Group
Before
discussing the transaction, Brennan spoke about the creation of BIG, “without
which, we would never have closed an acquisition of this scale” said Brennan.
After the expiration of Brennan’s non-compete restriction from First Industrial
in 2010, Brennan assembled a team of largely ex-First Industrial professionals.
“Each partner had unique skills, and each partner came from a critical region
in the U.S.” Within nine months, Brennan set up five offices in LA, Houston,
Chicago, Tampa and D.C. Brennan described his company as an “eat-what-you-kill
deal shop” where partners risks are high, but reward is as well.
The Unique Qualities
of the United States Industrial Portfolio (USIP) Deal
Robert
Vanecko explained his firms focus is on transactions that can create value for
all investors in the deal. An interesting methodology used by Brennan is
something Vanecko referred to as the “STP Matrix”. The matrix sorts and ranks
acquisitions by seller circumstance, transactional complexity, and property
level attributes. In this deal, Vanecko cited transactional complexity as the
factor driving the “value-add” component. Because of its sheer size and
inherent complications, there was a limited pool of buyers, hence limited
competition.
The
USIP deal also employed a fairly complex and unique equity financing scheme.
The L.P. equity was provided via a sharia
compliant equity partner know as Gatehouse, located in London. Sharia compliant
financing must employ different legal structures to avoid direct payment of
interest. As well, the investment cannot lease space to tenants involved in
usury, gambling, munitions, or pork products.
Successful
Closing
Vanecko
joked that if Graaskamp were alive today his famous adage on the critical path
of deals might be revised to read “A successful real estate deal is nothing
more than a game of ‘whack-a-mole’”. Vanecko emphasized that in every deal,
there will be three or four things that will arise that have the potential to
kill a deal. In USIP I and II, there were “dozens of rounds of ‘whack-a-mole’
we had to win in order to close.”
Given
the young audience, Brennan offered great tips regarding start-up operations
including “start-ups have to starve”, and discussed his firm’s critical ability
to manage start-up and pursuit costs without being left ‘holding the bag,’ if
you cannot come up with the equity or the desired properties. Brennan also
placed great emphasis on the importance of relationships in this industry. On
behalf of the students here, we would like to thank Mike and Bob for sharing their
knowledge and experience with us!
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