Philadelphian Anuj Mittal describes learning about the UK property market as like “drinking from a fire hose”. “I remember asking, ‘who’s Tesco?’ and ‘what is a gilt?’,” he jokes.
But two years after arriving in the UK, Mittal seems to be making some headway with plans to develop a real estate business here for Wall Street heavyweight Angelo Gordon & Co.
So far the investment manager has spent around £150m on UK property, of which £55m is debt.
The biggest slug of that has been spent on the hotel project it will unveil next month: the revamped, four-star St Ermin’s Hotel in London’s St James’s. It has poured £95m into buying and redeveloping the former NH Hoteles’ property and converting an office block next door, which will take the room total up from 275 to 340 when the final phase is completed in October.
The deal is structured as an op-co/prop-co joint venture, with Angelo Gordon owning the majority stake in the jv and UK developer Gracemark and US hotelier Amerimar Enterprises owning minority stakes.
Working with expert partners to reposition under-performing assets like this one is the formula at Angelo Gordon, founded 23 years ago by ex-Rothschilds men John Angelo and Michael Gordon.
Today, it manages $23bn of assets – split roughly in half between real estate and credit and distressed debt investments – but has a staff of just 200, of which 100 are decision-makers.
The debt arm of the business has been in London for more than a decade and in 2006 the firm moved into some of the most expensive office space in town: taking a floor at 25 Hanover Square, W1, next door to Jones Lang LaSalle.
Then, when the financial crisis took root, it decided – like many others – that it wanted its own slice of distressed UK property.
“Our business is to find distressed assets. It has got to be fundamentally cheap, there’s got to be a story on the buy. We are not buying brochures in any way,” says Mittal, a director.
He is a details man: “When we put on our real estate hat we are real estate guys – we look at ceiling heights, we want to see if we can take out radiators to get an extra foot, we want to lay the floor optimally from a tenant’s perspective.
“When we invest in real estate we do it out of a hardcore real estate bucket, whereas a lot of [private equity] groups are investing in real estate out of distressed buckets.”
Angelo Gordon is raising equity for two main real estate funds, both of which will have a 25% allocation for international assets: an opportunistic vehicle, and a core plus vehicle. Both are likely to have spending power in excess of $1bn.
Mittal’s UK deals to date have gone into the last opportunistic vehicle, AG Realty Fund VII, which targeted net returns of 20%.
Before the hotel deal, he partnered Westcore Properties to buy an £18m loan secured against a City office block and in January this year he backed Lathe Investments’ £28m buy-back of the Castlegate shopping centre in Stockton-on-Tees from special servicer Capita.
Arguably, this diversity is something of a stumbling block as Angelo Gordon looks to forge a reputation here. “There is no clear message to the market about what they want,” observes one private investor. “A lot of people have equity. What makes them so different?”
But Anthony Pell, managing director of Gracemark, says he has been impressed with the firm’s drive. “They allow us the freedom to exercise control over key decisions, which has not always been the case with some of our overseas partners,” he adds.
And Mittal, who has been building relationships with other UK players such as Investream in readiness to do deals, believes that Angelo Gordon has other selling points. It was one of nine fund managers selected by the US Treasury in 2009 to raise money to buy up legacy securities to help free up the financial system, for example.
The $1.25bn fund it raised with GE capital is the largest of those funds and has so far provided the best returns. “That has been a helpful entrée for me into banks in Europe,” says Mittal, who splits his time between London and Amsterdam, where Angelo Gordon has an office and his family is based.
He has “poked around” the loan portfolios being marketed by the state-owned banks, but says “hyper-competitive situations” are not Angelo Gordon’s forte. “That’s not to say that all of it will come out in competitive situations. Between the UK banks, Nama, the Spanish, German and Icelandic banks, there’s a lot of stuff,” he adds.
And after a slow start, he believes things are getting interesting now. “When I look at our deal pipeline, now there are more real deals that I recommend the firm to do and are deliverable than there have been in the past two years.”
Frustratingly, one deal he had lined up for the core plus fund has just been pulled by the vendor. “It was off-market, prime Londone_SLps I think people realised it was too good a deal. It was the day before exchange and they pulled it.
“I think it broke all the ethical rules that people say are understood here and never get broken, but in a cycle like this those rules get broken and we should have done a better job tying them up with something binding.”
But despite that one getting away, Mittal is optimistic that there will be other deals and he expects to be spending a lot more time here.
