Dell taps Sholem to run $1 billion of equity

Real Estate Alert, April 28, 2004

Computer mogul Michael Dell has allocated $1 billion for high-yield real estate investments and has hired fund pro Barry Sholem as his advisor.

Sholem, the former head of Credit Suisse First Boston's opportunity funds, is said to be co-investing a significant amount of equity. Through the use of about 70% leverage, Sholem will have well over $3 billion of buying power at his disposal.

Sholem is structuring an investment vehicle that is like an opportunity fund, with incentive compensation. But unlike traditional opportunity funds, the Dell vehicle isn't limited by any timetables, either for investing the capital or disposing of assets. Instead, Dell may decide to build a large real estate portfolio and hold it long term. That type of strategy can make 20%-plus returns more difficult, but such yields are not considered central to this fund's strategy. In his first investment for Dell, Sholem last week agreed to pay Shimizu Land $280 million for the Four Seasons at Wailea, a luxury resort on the island of Maul. The 380-room property is viewed as having a lot of upside. Opportunity funds sponsored by Goldman Sachs and Walton Street Capital also bid on the property.

Joining Sholem is longtime associate Andrew Kassoy, who formerly ran the European arm of First Boston's opportunity funds. Kassoy will work out of a New York office, while Sholem will be based in the Los Angeles area.

When Sholem left First Boston last fall, he was said to be interested in setting up a large commingled fund. But with Dell, Sholem has evidently landed a capital commitment so large that he does not need to solicit additional equity. Sholem, who declined to comment, will be working with MSD Capital, Dell's investment-management group.

Sholem and his team generated stellar returns for the first two First Boston funds, which had a combined $1.9 billion of equity. Sholem originally launched the funds with David Weil at Donaldson, Lufkin & Jenrette. First Boston assumed them through its acquisition of DLJ in 2000. Sholem employed a global strategy, including a string of home-run deals in Japan a couple of years ago. What kind of geographic mandate he has with Dell is not known.

Sholem and Kassoy have worked together since the early 1990s, when they were at Goldman's Whitehall Street Real Estate Fund. They and Well moved over to DLJ in January 1995 and to First Boston in 2000. Weil and Sholem were co-heads of the investment bank's opportunity funds until Weil left in early 2002, when Sholem assumed sole control. After Sholem left, veteran First Boston managing director Andy Rifkin took over.