B6| Wednesday, July 31, 2019 THE WALL STREET JOURNAL.
THE PROPERTY REPORT
that strategy. The firm has
purchased about $30 billion of
real estate since 2012 but
primarily using its own capital,
people familiar with the matter
said.
Under the new strategy,
Goldman hopes to launch a se-
ries of real-estate funds start-
ing with the $2.5 billion fund
that will look for property in
the U.S., Europe and Asia. Gold-
man hopes to launch a second
fund toward the end of next
year, these people said.
Goldman already has
started purchasing property
that will likely be included in
the fund, including a stake in a
4,300-bed portfolio of student
housing in Orlando, Fla., Tuc-
son, Ariz., East Lansing, Mich.,
and other cities from Chicago-
based Core Spaces, the devel-
oper and operator. The deal
valued the portfolio at over
$600 million.
The bank is consolidating all
its real estate activity—which
include a mezzanine debt fund
business and equity invest-
ments made by the firm’s spe-
cial-situations group —in the
merchant banking division. The
operations now have offices in
the U.S., Europe and Asia and
employ more than 350 profes-
sionals.
The business “had grown to
a scale where the opportunities
we were seeing exceeded the
aggregate capacity of the bal-
ance sheet,” said Julian Salis-
bury, one of the new co-heads
of merchant banking who over-
sees real estate.
Goldman’s new real-estate
fund business aims to take on
less risk and target lower re-
turns than the Whitehall funds
did.
The new fund will limit debt
on property to no more than
60% of its value and target re-
turns in the 12% to 15% range.
Whitehall aimed for annual re-
turns in the high teens and its
leverage would sometimes ex-
ceed 80%. Goldman expects to
increase leverage in future
funds, the people familiar with
the matter said.
Goldman also will seek to
raise capital for the new real-
estate fund from both institu-
tional investors and wealthy in-
dividuals. Whitehall raised
most of its money from the lat-
ter.
Goldman will “invest a lot of
our money” in the new real-es-
tate fund, just as the firm and
its employees put their money
in the Whitehall funds, Mr.
Salisbury added.
Goldman’s real-estate busi-
ness wasn’t the only one to get
clobbered after making big bets
late in the previous real-estate
cycle.
Property losses at Lehman
Brothers Holdings Inc. were a
major cause of its demise. Mor-
gan Stanley’s real-estate busi-
ness also suffered major losses
and stopped raising private-eq-
uity funds for years after the
crash.
But Goldman has been late
in getting back to the real-es-
tate fund game. Morgan Stan-
ley closed its first-post crash
private-equity fund in 2015 at
$1.7 billion. It raised an addi-
tional $2.7 billion fund in 2017.
Mr. Solomon’s reorganiza-
tion remains a work in prog-
ress. The leadership of the new
real estate group has been set,
but it is still not clear how well
the different groups from dis-
parate parts of the Goldman
empire will work together in
the fiercely competitive
culture.
Goldman also has to deal
with the ghosts of Whitehall.
Because that fund family was
known so well, the name often
comes up, creating a potential
obstacle for Goldman’s sales
force when approaching
investors for new commit-
ments, according to industry
participants.
The Whitehall reputation
will “make the initial conversa-
tions a little bit harder,” Mr.
Salisbury said. But he predicted
that once investors start “peel-
ing back the onion” they’ll real-
ize “this is going to look like a
very compelling, well-aligned
opportunity for people to in-
vest alongside Goldman Sachs
and its employees.”
—Liz Hoffman
contributed to this article.
Goldman Sachs Group Inc.’s
newly reorganized real-estate
investment unit is reviving a
fund business that the firm
shut down after it suffered
steep losses during the finan-
cial crisis.
The new group is raising a
$2.5 billion real-estate fund
structured similarly to the for-
mer Whitehall family of prop-
erty funds, according to people
familiar with the matter.
This business thrived in the
1990s and early 2000s, turning
big profits on deals such as
New York’s Rockefeller Center
and Canada real estate giant
Cadillac Fairview Corp.
But Goldman quietly let the
BYPETERGRANT
program expire a few years ago
after it ran aground with
soured bets like New York’s
Helmsley Building and the
Stratosphere, a Las Vegas ca-
sino that Goldman sold in 2017
for about $450 million less
than it paid for it a decade ear-
lier, according to people famil-
iar with the matter.
One Whitehall fund, which
invested near the top of the
market before the 2008 crash,
once reported a value of less
than 20 cents on the dollar,
though it eventually returned
investors about 75% of their
money, these people said.
The new real estate unit is
part of a broader reorganiza-
tion engineered by Goldman
Chief Executive David Solomon,
who took over last fall. Mr. Sol-
omon wants the firm to focus
more on making investments
for third parties and generating
fees.
The real-estate business will
be a prime testing ground for
Goldman
Revisits
Real Estate
Investment bank to
raise $2.5 billion to
revive a fund business
that once thrived
ing experience.”
Compass’ previous funding
round, which valued the firm
at $4.4 billion, was in Septem-
ber. Since then, the firm has
expanded to about 13,000
agents nationwide from about
7,000.
The latest funding round
comes during a heated venture
market. Capital is chasing
high-growth companies at un-
precedented levels, benefiting
numerous real-estate compa-
nies including Compass and
Opendoor Labs Inc.
Earlier this month, Com-
pass was sued by competitor
Realogy Holdings Corp. the
parent company of Corcoran
Group, Sotheby’s International
Realty, Coldwell Banker and
other real-estate firms, which
claimed Compass had engaged
in unfair and illegal practices
to gain market share.
Realogy accused Compass
of pilfering trade secrets and
encouraging agents to break
their noncompete agreement.
Compass denied the allega-
tions.
Goldman Sachs has started purchasing property for a new fund, including a stake in this student housing complex in Orlando, Fla.
EVE EDELHEIT FOR THE WALL STREET JOURNAL (2)
Compass raised $370 mil-
lion in a deal that increases
the real-estate brokerage’s val-
uation to $6.4 billion and indi-
cates the firm is nearing an
initial public offering.
Compass announced its lat-
est funding round on Tuesday
and said it increased its total
capital raised to more than
$1.5 billion since it launched in
- Investors in the round
include Dragoneer Invest-
ment Group. Some of the
firm’s existing investors, such
as SoftBank Vision Fund ,
Canada Pension Plan Invest-
ment Board and the Qatar In-
vestment Authority , also con-
tributed more money.
Compass is expected to
roughly double its revenue
this year to about $2 billion,
according to a person familiar
with the matter.
New York-based Compass
has shaken up the real-estate
brokerage industry in recent
years by luring top agents
with generous commission
splits and stock options and,
more recently, fronting sellers
money to spruce up their
homes for sale. The firm’s
deep pockets have left incum-
bent competitors struggling to
keep up amid a slow housing
market and shrinking margins.
San Francisco-based Drag-
oneer has a record of late-
stage venture-capital invest-
ments that often precede IPOs.
For example, the firm joined
rounds for companies such as
Slack Technologies Inc. and
Uber Technologies Inc. in the
run-up to their public offer-
ings.
A person familiar with
Compass’s plans said Drag-
oneer’s involvement in the re-
cent round is a sign the bro-
kerage firm is considering a
public offering in the near
term. A spokesman for Drag-
oneer declined to comment.
Compass Chief Executive Rob-
ert Reffkin declined an inter-
view request.
Compass has branded itself
as a technology firm, touting
the online tools it has devel-
BYKATHERINECLARKE
ANDYULIYACHERNOVA
Compass Funding Round
Yields $6.4 Billion Valuation
Compass Chief Executive Robert Reffkin in New York
GO NAKAMURA FOR THE WALL STREET JOURNAL
oped to help agents produce
pitching materials and com-
municate with clients about
listings. But the firm hasn’t
changed the way people buy
and sell homes. Its business
model functions much like leg-
acy firms with traditional
commission rates for agents.
Compass said it would use
the new capital to invest in its
technology and further expand
its tech teams on the East and
West coasts. Compass
launched its engineering hub
in Seattle earlier this year and
plans to staff it with roughly
100 engineers to build what it
has dubbed an “end-to-end
software platform to stream-
line the home buying and sell-
The firm said it
would use the new
capital to invest in
its technology.
Business Real Estate & Auctions
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