TMG Creates New $166MM Separate Account Relationship

Downturn, Lessons, Hemming Morse, San Francisco, Bay Area,

By Jon Peterson

San Francisco-based TMG Partners has formed a separate account relationship to invest in real estate in the San Francisco Bay Area. There is a total of $166 million of equity that is placed into the account. 90 percent, or $150 million, is coming from an un-named institutional investor based outside of the United States. TMG is putting in around 10 percent or $16 million of its own capital into the account.

TMG is very confident of its ability to find transactions in the Bay Area, despite all of the capital that wants to invest in the region. “With over 32 years in the Bay Area, we have developed great relationships and are able to source many deals that are off market,” says Michael Covarrubias, chief executive officer of TMG.

The arrangement of the capital for the separate account was sourced by New York City-based Park Madison Partners, a placement agent. This account is the first time that Park Madison has done business with TMG.

“TMG fits all of the criteria of a best-in-class manager. The firm has a 30-year history of real estate investment focused exclusively on the San Francisco Bay Area. The senior team members have been working together for 20 years. They have an intimate knowledge of the Bay Area market and have received numerous awards and accolades for their projects,” says Gentry Hoit, a partner with Park Madison.

The placement agent is a believer in the San Francisco market. “The San Francisco Bay Area is a classic global gateway city. It provides real estate investors with a unique convergence of job growth, innovation, lifestyle, intellectual capital and high barriers to entry that make it one of the most fundamentally attractive investment destinations in the world. TMG has been in the market long enough to understand all these different dynamics, having successfully navigated San Francisco’s market cycles for 30 years,” said Hoit.

The total capitalization of the separate account will be around $470 million. This will be achieved through the use of approximately 65 percent leverage. The deals for the account will be focused on assets that have a value-added component. This typically would mean achieving returns that are net IRRs in the low to mid-teens range.

TMG is looking at a variety of markets in the Bay Area where to invest the capital. “When markets get valued as highly as they are today, we seek opportunities with long–term intrinsic value. We currently have projects in Fremont, [San Francisco] and other submarkets as we continue to have confidence in the region,” said Covarrubias.

TMG will have investment discretion on the separate account. This means the manager will be able to make the final investment decisions on its own without needing any approval from its institutional investment partner. TMG figures to invest in a mixture of office buildings, R&D, residential and mixed-use projects.