11/11/2009

'Green' Fund Pulled Despite Goldman Pledge

After two years of marketing, Bond Cos. and Abraham Group have pulled the plug on a planned $350 million vehicle targeting "green" real estate opportunities.

The duo lined up about $140 million of tentative commitments, including pledges from a Goldman Sachs fund of funds and a client of Cleveland-based consultant Courtland Partners. But Courtland wanted the fund to have at least $200 million of equity, and the sponsors were unable to reach that threshold.

The vehicle, Bond Cos. Sustainability Fund, initially was designed to develop and redevelop properties in urban markets. As the downturn worsened, the focus switched to properties that could be renovated or repositioned to maximize energy consumption, minimize waste output and reduce greenhouse-gas emissions and water use. The conservation features were aimed at reducing expenses and qualifying for tax breaks, thereby increasing property values. The return goal was 13.5%.

The broad investor pullback over the past year no doubt hurt the ability of Chicago-based Bond and Washington-based Abraham to raise capital. Placement agent Wetherly Capital apparently stopped reaching out to potential U.S. backers about a year ago, shortly after the financial markets fell into disarray. A separate, unidentified placement agent apparently solicited capital from European investors, with limited success.

The marketing effort was also hurt by the departure early last year of chief investment officer Stephen Grant, considered a "key person" for the fund. Grant joined fund shop Fowler Property Acquisitions of San Francisco in March 2008.

Courtland evidently felt that the fund needed $200 million of equity to have enough investment firepower and was reluctant to commit its clients to the vehicle if that threshold wasn't reached. One of its clients, Los Angeles City Employees, discussed in the spring whether it should go ahead with a planned $10 million commitment even if the threshold wasn't reached. There's word that around the same time, the fund sponsors had a similar discussion with Goldman Sachs Real Estate Partners, which had planned to provide $80 million of seed capital. But in the end, both investors decided not to proceed.

Bond Cos. is a two-decade-old company headed by brothers Lawrence and Robert Bond. Abraham Group is headed by Spencer Abraham, a former U.S. senator from Michigan who served as energy secretary during the first term of President George W. Bush.

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