The owners of the New York Mets, whose deal to sell a minority stake in the team to hedge fund investor David Einhorn recently collapsed, may well lose money on a 2006 real estate fund investment they co-sponsored, according to a column to be published in the Sept. 5 edition of sister magazine Buyouts.
According to a report prepared for Teachers’ Retirement System of Louisiana by adviser Hamilton Lane, Sterling American Property V LP, a vintage 2006 real estate fund to which the pension fund committed $50 million, had generated a -25.59 percent IRR and 0.41x investment multiple as of March 31. The co-sponsor of the fund, Sterling Equities, said that, in fact, over its life the partnership is projected to do far better than that.
Sterling Equities also is the majority owner of the New York Mets. Its co-founders, Saul B. Katz and Fred Wilpon (pictured), are defendants in a lawsuit by a trustee seeking to recover hundreds of millions of dollars from them on behalf of victims of the Bernard L. Madoff Ponzi scheme. (See earlier story on private equity interests of Sterling Equities.)
Sterling Equities, which manages money for the Katz and Wilpon families, is the largest investor in Sterling American Property V. The $609 million pool, earmarked for investments in office buildings and multi-family properties, sailed right into the teeth of the 2008 financial crisis. The following year the firm lost its largest Fund V investment, when the office building at 333 Bush Street in San Francisco went into foreclosure following the bankruptcy of its anchor tenant.
But Sterling Equities reports that the fund has performed better than the Hamilton Lane report would suggest. In a formal statement printed below, Gregory P. Nero, Sterling Equities general counsel, wrote that the interim numbers in the Hamilton Lane report are not consistent with its assessment of fair value of the remaining Fund V holdings. The firm projects that investors in the fund will recover at least 85 percent of their money.
Statement by Gregory P. Nero, Sterling Equities General Counsel:
The returns reported by TRSL are not consistent with what we believe is the fair market value of the assets of Sterling American Property V or what we have reported to our investors is the fair market value of such assets. We believe they are calculating their returns based upon the audit financials, which are reported on a cost basis, not a value basis. [Sterling Equities is a fully integrated real estate operating company with almost 40 years of experience. Since 1991, it has invested in real estate primarily through its Sterling American Property funds, where it has invested in 161 investments, valued at over $4.4 billion.] The net IRR of the first 4 Sterling American Property funds range from high single digit returns to high teen returns, in-line with the risk profile of the investments. While the projected returns for the 2006 Sterling American Property V fund are not expected be in line with those of the prior Sterling American Property funds, given the economic environment of 2008-2010, Sterling Equities continues to believe that the returns for its 5th fund will be respectable and are currently projecting to return in excess of 85% of their investors’ capital investment.
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(Fred Wilpon. Photo by Jeff Christensen, Reuters)