Buchanan Street, a Newport Beach-based real estate investment and financing firm started in the late 1990s by four Bay area thirtysomethings, is nearing a milestone.
This month, Buchanan Street is working on investment deal No. 100, an industrial redevelopment in Santa Ana with Newport Beach’s Master Development Corp.
“Right at the beginning, we had an idea of what we wanted the company to be,” said Tim Hawthorne, a cofounder and executive vice president. “It’s worked out. But in hindsight you can see the difficulties that we faced. It hasn’t been easy and has taken a lot of hard work.”
Buchanan invests in real estate and lines up financing for developers.
The firm’s investment management arm, which invests its own money and manages investments for pension funds and wealthy investors, has raised more than $1 billion in the past seven years. That money has been used to buy nearly $3 billion in office and industrial buildings, apartments, even self-storage units.
The firm’s financing business, meanwhile, has been involved in $8 billion of financing deals for developers.
Of Buchanan’s first 100 investments, 45 have been “round-tripped”,or cashed out with returns,with an average profit of about 30%, cofounder and Chief Executive Robert Brunswick said.
The firm’s financing arm just did its largest deal to date in Santa Ana. Buchanan arranged $247 million worth of financing for Nexus Co.’s Skyline at Macarthur Place condominium project.
Brunswick, Hawthorne and cofounders Tim Ballard and Chris MacDonald named their firm after the San Francisco street where they met while working for Pacific Union Realty Finance.
The partners, who started their firm in Newport Beach, wanted to bring a bit of the Bay area’s go-go culture of the late-1990s to the traditionally stodgy world of real estate investing.
“We had a clear vision of what we wanted, when we started,” Brunswick said. “We wanted to make a difference in the real estate industry, and we wanted to have fun.”
Cuba Trip
Buchanan has its flair.
The firm requires employees to read a set number of books each year. The partners once rented a major league baseball stadium for a game of softball for employees and customers. Earlier this year, they took clients on an educational trip to Cuba.
The boardroom in the firm’s Newport Center headquarters houses a painting done by all its employees.
And then there is the ultra competitive nature of the 7-year-old firm and its executives.
Brunswick and a team of employees recently swam 12 miles across Lake Tahoe in 55-degree water. The partners once required workers to take part in a 150-mile relay race.
A company-backed fund-raiser, the Real Estate Challenge for Children, is part camaraderie, part boot camp.
“We don’t always act like a normal investment bank,” Brunswick said. “But that’s a large reason why we’ve been able to get so many good people here.”
“They have a high energy level,” said Bruce McDonald, president of Master Development, a frequent Buchanan partner.
“It’s exciting for us to work with them. This is a dynamic business,you need to have a pulse.”
Buchanan, which started out with a handful of employees, now counts 70 people with offices in Los Angeles, San Francisco, Chicago and Atlanta. The firm plans to open a New York office.
It has invested in real estate in 16 states.
Buchanan has become involved in a range of developments and acquisitions in Orange County and nationwide.
Locally, Buchanan had a hand in the South Coast Home Furnishing Center in Costa Mesa developed by Birtcher Development & Investments of Irvine. It’s also worked on the 2211 Michelson Drive office tower in Irvine and the Wyndham Hotel in Costa Mesa.
Investors in Buchanan’s funds include Don Kennedy, retired chairman of Santa Ana-based First American Corp., Bill Cvengros, former chief executive of Newport Beach-based Pacific Investment Management Co., and the California Public Employees’ Retirement System.
Santa Ana Deal
For the firm’s 100th investment, Buchanan and Master Development are buying a 230,000-square-foot, 11-building industrial complex on McFadden Avenue in Santa Ana.
The property, known as Electric Farms for its proximity to a power station, is set to be turned into for-sale industrial condominiums.
The Santa Ana deal is worth about $30 million. Master Development plans to put another $4 million of renovations into the site, McDonald said. It’s the sixth investment the two companies have done together.
“They’re not just financial engineers,” McDonald said. “A lot of investors are just capital providers. But they provide real estate savvy. They have a gut feel on real estate.”
Construction is set to begin early next year with units up for sale by the end of the year, McDonald said.
Buchanan’s financing arm just helped put together a loan for the tallest condo buildings currently approved near John Wayne Airport. The package for Nexus’ Skyline at MacArthur Place in Santa Ana included a $215 million construction loan from Fremont General Corp.’s Fremont Investment and Loan in Brea. Lehman Brothers provided a $32 million mezzanine loan.
What’s Next
The big question for Buchanan: where to go next.
The firm’s growth during the past seven years has begun drawing attention from other investment banks.
The partners said they’ve been approached by a number of prospective buyers. Others have asked about taking Buchanan public.
The company isn’t interested in either, according to Brunswick. Management and employees would prefer to stay private and in control, he said.
“I like to control my own destiny,” Brunswick said. “Besides, it’s too hard to build a new company.”
That doesn’t mean Buchanan isn’t looking to grow.
Plans are to add another 50 people to handle more deals. Buchanan also wants to start offering a combination loan and investment package later this year.
About two-thirds of the firm’s $1 billion raised has been spent. Buchanan plans to raise another $300 million to $400 million in a new fund.
Big returns could get harder to come by. Capitalization rates,expected return from rents and fees,have shrunk with rising prices for office, industrial and apartment buildings. Higher interest rates also are a factor.
For the past few years, “the wind was at our backs,” Brunswick said. “There will absolutely be cycles. But real estate as an asset class has been validated.” y
