Before an interview, most journalists worry whether their interviewee will warm to the subject. Marc Mogull, the founder of Benson Elliot Capital Management and a 20-year veteran of the private equity real estate industry, there was no need to be concerned.
Having explained last year's controversial split from Doughty Hanson, he romps effortlessly through two hours of on-the-record quotes, not just about his new firm and the powerful team he has assembled, but on everything else that came before it. From his roots as a budding realtor in a New York real estate family and a young gun at the legendary JMB Realty to sorting out the Randsworth Trust debacle and his pioneering days at the European Bank for Reconstruction and Development, his career has taken him through some of the landmark points in the history of private equity real estate.
With Mogull, you get the feeling that ten hours in his company would still not be enough to cover everything he wants to say. Charming, sometimes unintentionally funny, and confident in his own experience, the 44-year-old is full of anecdotes and observations about the industry he works in. It is a wonder that he hasn't given more interviews. But soon, his rationale becomes clear.
“The day you close [a deal] is the day your problems begin,” he says. “There's no victory dance. You haven't achieved anything, which is why in my last incarnation it became well known I shied away from talking to the press. The reason was I felt I hadn't achieved anything. All we had done was bought a lot of stuff. Until we could actually exit, I didn't want our team to feel that we had, in the words of our great leader across the ocean, ‘completed the mission.’”
Last year, Mogull left Doughty Hanson, where he had established the firm's real estate arm in 1998 as rumors surfaced that the firm was having difficulty retaining members of the real estate team. Nevertheless, he insists it was always part of his plan to set up on his own. In 2005, he founded Benson Elliot, which recently raised €335 million ($430 million) for Benson Elliot Real Estate Partners II, a European-focused private equity real estate fund.
“The separation between Nigel [Doughty] and me was largely amicable,” Mogull says. “I reached a point when I didn't think I needed that brand affiliation anymore. He respected that I didn't take any of the team with me and didn't, right away, go head-tohead in competition. I think he also understood my aspiration to continue running smaller funds.”
Although Mogull's track record gave him the credibility to set up his own firm and raise an even larger fund, he consciously limited its size, giving him the flexibility to be more selective in choosing deals and foregoing short-term fee revenue in favor of long-term investment performance. Conscious of the need to align the interests of his principals and his investors, Mogull also worked for months on the structure of the firm. In addition to giving all top recruits a share of the business, each principal shares in the firm's short-term and long-term profits and substantially all of the long-term incentives attributable to the fund's performance are paid out to the professionals investing and managing the fund.
“We spent a lot of time trying to get the structure right and how we would define the investment strategy and make sure that was consistent with the market conditions we thought we might be coming into,”Mogull says.
Part of that strategy is buying residential sites in city centers, if the firm's first deal is anything to go by. In October, Benson Elliot kicked off its investment program by paying €120 million for 171 condominiums in Havneholmen, part of Copenhagen's transformed south harbor. The deal reunited Mogull with the Swedish developer Sjaelso Gruppen, a company he worked with while at Doughty Hanson.
“In an environment where I don't see interest rates spiking, as long as the economy remains strong, I don't see why there shouldn't be continued strength in residential in the most desirable areas of Europe's major cities,” he says.
take advantage of those opportunities, Mogull quickly assembled a top team of dealmakers. Trish Geery, a 10-year Goldman Sachs veteran and most recently head of global real estate for the Dubai Investment Group, was first to sign on, followed by Phil Irons, previously head of direct property transactions at Schroders Property Investment Management; Leopoldo Andreis de Gregorio, a former vice president and director of Lehman Brothers Real Estate Partners; and Jeremy Hussey, previously chief financial officer of AIG Global Real Estate Investment (Europe).
Sitting above the transaction team is a board of strategic advisors that includes a Swede, three Brits, an Italian, a Dutchman and an American. That American: Blackstone founder John Kukral.
A FAMILY AFFAIR
Kukral's presence on the board not only brings extra gravitas to the firm, but also presents a clue to Mogull's past—the two worked together at JMB Realty—and how he got his start in the real estate business, a career path that was probably never in doubt. Mogull's mother was a top New York broker at Richard Ellis and his father was a real estate owner in the city. His sister is also a New York City broker.
“I'm doing the same thing everybody else in my family has done since time immemorial,” he says. “My mother, father, brother, sister and grandparents all were in the property business. It makes for pretty boring conversation at family gatherings.”
He continues: “My formative years came at my dinner table and in my mother's car, writing down numbers on signboards and looking at property, listening to her as she would make a judgement whether a site was good for restaurant or office use.
“When I came out of graduate school [at Northwestern], it really wasn't uncertain what I was going to do. I ended up starting in Chicago, not New York, and that was largely because I had met a woman who became my wife, who was a year behind me at school. It was fortuitous in many ways because I ended up joining a company, JMB Realty, that has become legendary in our industry. JMB spawned at least half a dozen of the guys who do what I do,” including Kukral, Barry Sternlicht at Starwood Capital, Jeff Quicksilver at Walton Street Capital and Eugene Gorab at Greenfield Partners. “We were sort of like a bunch of merry men, young and relatively inexperienced, but we learned an enormous amount because it was one of the first deal shops set up like the firms we run today.”
Mogull spent his formative years at JMB while the company was growing from approximately $2 to $3 billion in assets up to approximately $20 billion. It was an experience he relished, particularly after spending time immediately after college as a JP Morgan analyst running endless spreadsheets. At JMB, he was working as a principal, in contrast to other members of his family, a position he says he has always felt comfortable with.
“My mother and sister are both agents so we have a rule at home that you are never allowed to say anything negative about brokers,”Mogull says. “But that is a fee-driven business. Payment at closing. Being a principal is a relatively straightforward, but very different, business. You buy something and you sell it for more.”
Not that doing deals at JMB Realty was always straightforward. After structural changes at the firm, Mogull was given responsibility for an area between Washington DC and Atlanta. “I would challenge most Europeans to name three cities that actually fall within that region,” he says.
At this point, the photographer correctly offers Charlotte and Mogull starts to mimic the accent of the “good ol' boys” in other cities such as Nashville and Raleigh.
“I remember having to ride the mechanical [rodeo] bull in Memphis to do a mall deal because the owner was convinced that if you couldn't ride the bull you weren't man enough, and if you weren't a man he wouldn't do business with you,” Mogull recalls. “But you want to know something? That part of the US is still where growth is.”
Ultimately though, Mogull had to leave those US towns for Europe, having promised his Swedish wife that they would move across the Atlantic. US investment banks Goldman Sachs and Morgan Stanley were active in the real estate advisory business, and Goldman was looking to expand its franchise in Europe. Enter Mogull, who understood what he calls the “guts” of a deal from his tenures at JMB and JP Morgan.
“I've done every step in the career progression,” he says. “Today, everyone's time horizon seems to have shrunk. The analysts want to know if it's going to take them two months or three months to have my job. One of the things I tell them is that if you really want to understand the asset you are buying, you have to understand the spreadsheet you are putting together. You have to understand every number in it. It is the equivalent of doing a dissection to learn anatomy.”
But London plunged into trouble just barely a year after he landed in the city. While his colleagues and contemporaries returned home, Mogull stayed for his family, rejoining JMB to sort out one of the largest disasters in private equity real estate history— the $1 billion acquisition of British property company Randsworth Trust, which eventually went bankrupt—an experience that has given him some perspective on the nature of real estate cycles.
“It's one thing for young professionals to say ‘What happens if you don't meet projections?’” he says. “Anyone who is under 35 today came into this market after the last downturn and has seen only one way. There are a lot of people doing what I do today who really don't know what happens when markets go down.
“Coming into work every day and knowing you didn't have enough cash coming into the company to pay your outgoings is a tough environment to be in. Only experience teaches you this; there is so much respect for what the numbers say in the computer. But when the market really gets tough, the tenant comes in to you and says, ‘Don't tell me what it says on my lease, no one is coming into my shop.’ It was a great exercise in coming back to earth and what our business is about, but I found it depressing.
“I would get on the phone and have a conversation with [JMB headquarters in] Chicago and say, ‘I have got great news for you guys. Today we only lost $1 million. It's been a good day.’ That is not what I wanted to do.”
Ultimately Randsworth could not escape receivership and Mogull found himself approached by a number of other companies, including Olympia & York, which felt him out for the chief financial officer role at Canary Wharf shortly before the project went bankrupt.
“I dodged that bullet,” he says.
Instead, his political interests, the election of Bill Clinton as president of the United States and the optimism that followed the collapse of the Soviet Union led Mogull to the European Bank for Reconstruction and Development as head of real estate and hotels. His appointment in the mid-1990s came at a time when the EBRD's countries of operation (the former Soviet states and Soviet satellites of Central and Eastern Europe) were desperate for investment.
“The guy who hired me said, ‘Marc, you have spent your whole career making money. It's now time to make history,’” Mogull recalls “That was the period when people had these visionary ideas. It was the first time I moved out of working for a US firm. That was the defining move in my career. I mentally checked out of the US.”
And so began a well documented era in which he led a team of 15 different nationalities to more than 20 transactions and $1 billion in investments, a huge amount of money for the region at the time. Although he left to join Doughty Hanson in 1998, Mogull looks back on his time at the EBRD with fondness, proud not just of his work but also that only one person from his team voluntary left during his two terms (and that was to return to the US).
“I love training people,” he says. “I have had more people come through and train under me than most. My wife sometimes says deep down I want to be a professor.”
Building and leading strong capable teams is something Mogull views as one of his strengths, be it at the EBRD, Doughty Hanson or Benson Elliot. As he puts it, “The one thing I believe investors give me credit for, beyond the fact that I have probably as much experience doing this business as almost anybody in Europe, is the track record I have of assembling and leading good teams.”
Mogull's track record of building those teams goes back a long way. In fact, according to Mogull, there is only one other American who has spent more time in the European private equity real estate industry: John Carrafiell, global co-head of real estate for Morgan Stanley, who came to London a few short months before Mogull did.
“We sometimes joke,” he says. “Apparently there is a tradition here that once a year all the ambassadors go to meet the Queen and the senior-most always gets to be acknowledged somehow. John will always be ahead of me in that receiving line.”
Mogull may be second in line, but his new firm, located in a discreet office just off Sloane Square, is still looking to establish itself at the head of the pack. As one of the longest-serving private equity real estate fund managers in Europe, Mogull has a pretty good idea how to get there. Hint: it involves a lot of work.
“I don't like the term opportunity fund,” he says. “To me an opportunity fund was a creature in the early-1990s in the RTC. We're a real estate private equity firm. What we do is buy real estate and work it to death.”
“Today everything is expensive,” he adds. “The question is, ‘What can you buy at the market price and make it worth more?’ That's our job: to buy something and sell it for more. In between, if you take the view that the market isn't going to give you anything, you better make the right judgments and have a plan. It goes back to not doing the victory lap after you've done the deal because all you've done is created your problems, not solved them. Not much glamor in that.”
And with that, Mogull is off. Somehow, I don't think he has gone looking for a flag.