2 pros team up to make high-yield plays

Real Estate Alert, April 14, 2004

A co-founder of the old PaineWebber Real Estate Fund has teamed up with a West Coast development veteran to form an investment firm.

John Tashjian, who left the PaineWebber fund last year, has formed Centurion Real Estate Partners with Jeffrey Worthe, a partner at M. David Paul & Associates of Los Angeles.

Centurion plans to make equity and debt investments, seeking an internal rate of return of 18-22%. Although the firm may eventually set up a commingled fund, for now it will make purchases through joint ventures or partnerships. Centurion will operate the ventures, while its partners will put up the bulk of the equity.

In its first deal, Centurion bought a cluster of condominiums on Manhattan's Upper East Side. It plans to improve the units significantly and then sell. Windsor Capital, Lehman Brothers and Merrill Lynch provided equity and debt for the acquisition. Centurion is also close to an agreement to provide debt financing for a retail development in Paris.

Tashjian co-founded the PaineWebber fund in 1999 with Terry Fancher. Last July, Fancher bought the management rights to the fund from UBS, which had acquired PaineWebber in 2001. Fancher now operates the fund though a newly formed firm, Stockbridge Capital Partners of San Mateo, Calif.

Rather than join Stockbridge, Tashjian opted to start his own company. Last summer, he started talking to Worthe, who specializes in West Coast development projects for M. David Paul. That company frequently teamed up with the PaineWebber fund on investments. Worthe will continue to work with M. David Paul on existing projects. It is not clear whether he will be involved with future efforts.

Robert Schlesinger, who was an associate at the PaineWebber fund, has also joined Centurion.

Centurion is initially shying away from the fund format to avoid pressure to invest a large batch of capital at a time when the level of risk associated with high-yield deals keeps fluctuating. Tashjian expressed concern that many opportunity funds continued to seek a 20% internal rate of return over the past few years, even though returns on other types of investments fell sharply. "This generally meant that they had to go farther out on the risk curve to generate the same 20% IRR that they were previously able to achieve while assuming far less risk," he said.