CHICAGO--(In June 2012, Walton Street Capital handed its largest investment ever, the $2.8 billion CalWest Industrial Portfolio, over to lenders. Investors in the Walton Street funds that owned CalWest lost nearly half of their investment (around $193 million) in the deal.)--
A new report by UNITE HERE takes a closer look at the CalWest deal and the fees Walton Street charged investors.
Walton Street recently disclosed that it had collected “slightly less than $60 million” in fees on the CalWest Industrial Portfolio, more than four and a half times (4.5X) Walton Street principals’ $13 million investment in the deal.
Walton Street’s acquisition fee on CalWest would have been at least $26 million, meaning Walton Street principals had little downside risk on CalWest from day one, while limited partners bore considerable risk.
Walton Street’s failed CalWest investment and aggressive collection of fees recalls the failure of JMB Realty’s C$2.1 billion Cadillac Fairview deal, in which investors including 39 pension funds lost 80% of their investment while JMB Realty (predecessor to Walton Street) generated C$275 million in fees.
Both deals raise questions about Walton Street’s commitment to interest alignment between the General Partner and limited partners in its real estate fund – i.e. whether the Walton Street principals should do well even as investors suffer.
With its new fund, Walton Street Real Estate Fund VII, Walton Street has maintained the structures – an acquisition fee linked to equity and debt, a high (80%) leverage cap, a low (2.25%) General Partner commitment – that enabled it to collect $60 million on an investment that lost $193 million of limited partners’ capital.
Investors in the CalWest deal that have thus far not reinvested in Walton Street’s new Fund VII include the Chicago Municipal Employees Annuity and Benefit Fund, Chicago Teachers Pension Fund, Denver Employees Retirement Plan, Houston Police Officers Pension System, Illinois State Board of Investment, Los Angeles City Employees Retirement Association, Milwaukee Employees Retirement System, New Jersey Division of Investment/ State Investment Council, New Mexico Public Employees Retirement Association, New York City Employees' Retirement System, New York City Fire Department Pension Fund, New York City Police Pension Fund, New York State Teachers Retirement System, Ohio Police & Fire Pension Fund, Rhode Island State Investment Commission, San Bernardino County (CA) Employees Retirement Association, San Joaquin County (CA) Employees Retirement Association, Teacher Retirement System of Texas, Texas County & District Retirement System, Texas Permanent School Fund, and the University of California Retirement Fund.
The report on Walton Street’s failed CalWest deal is available on www.waltonstreetwrecks.org.
For more information, visit www.waltonstreetwrecks.org.
UNITE HERE represents workers throughout the U.S. and Canada who work in the hotel, gaming, food service, manufacturing, textile, distribution, laundry, and airport industries. UNITE HERE affiliates hold over $4 billion in financial assets contained in jointly-trusteed pension plans. UNITE HERE represents thousands of public employees who are participants in the Chicago Municipal Employees Annuity and Benefit Fund (MEABF), a limited partner in Walton Street Real Estate Fund V.