Harvard Grad Solves His Family’s $1.6 Billion Liquidity Problem

(Bloomberg) -- Nicolas Ibanez started at Harvard Business School with a 10-digit dilemma.

It was mid-2009, and his family had just started to invest some of the $1.6 billion that Walmart Inc. had paid earlier that year to acquire the Chilean supermarket chain his family had founded. Ibanez, no longer heir to a retail empire, felt compelled to alter his MBA plans to focus more on finance.

“I completely shifted my curriculum,” he said in an interview. “Suddenly, as a family, we had this big challenge of managing our liquidity.”

Ibanez, now 36, rose to the task. Backed by his family, he set up property investment firm Drake Real Estate Partners in 2012 to target deals beyond the U.S.’s biggest cities. Today, with assets approaching $1.5 billion, the New York-based firm is seeking to raise about $400 million by year-end for a new fund. The Ibanez clan is putting up almost a quarter of the total, keeping a commitment that has attracted the attention of other rich families with a taste for U.S. real estate.

“We tried our first fund just with my family’s capital,” he said. That was key in persuading other families to commit. “They knew that we were serious,” Ibanez said.

The Ibanez family is well known within Chile. Their fortune traces back to the 1950s, when Nicolas’s grandfather established the first supermarket in the country. His father helped expand the business into Distribucion y Servicio D&S SA, a publicly traded national chain that rivaled billionaire Horst Paulmann’s Cencosud SA to control about a third of the Chilean supermarket industry by the time Walmart took a controlling stake a decade ago, valuing the business at $2.7 billion.

Five years later, Walmart bought the Ibanez family’s remaining holdings, ending their ownership of a business whose success aligned with the economic overhaul implemented under General Augusto Pinochet. D&S’s old headquarters in Santiago had a stone plaque commemorating the late dictator, who took power in a bloody coup that toppled the democratically elected president and remained in office until 1990. Nicolas said Pinochet’s government helped restore democracy in Chile and pave the way for the country’s economic transformation.

“D&S and Walmart were a natural fit,” Carolina Bank Munoz, Bridget Kenny and Antonio Stecher wrote in “Walmart in the Global South,” a 2018 book about the world’s biggest retailer. “D&S’s growth in Chile mirrors Walmart’s expansion of its empire in the United States.”

In addition to diversifying through real estate, the Ibanezes have invested directly into businesses through their family office, Drake Group, named after 16th century explorer Francis Drake. These companies include Spanish-speaking franchises of Papa John’s International Inc., U.K. private bank Hampden & Co. and Glovo, a startup courier service. Direct deals make up about a third of family offices’ portfolios, according to research by UBS Group AG and Campden Wealth published last year.

Nicolas Ibanez founded Drake Real Estate Partners with David Cotterman, a former property investor at Michael Dell’s family office, as the Chilean native’s family sought more U.S. investments. Even as President Donald Trump wages a trade war with China, the economic stability of the U.S. makes it a leading destination for foreign real estate investors. Cross-border acquisitions of U.S. commercial property totaled $94.9 billion last year, approaching a record, according to Real Capital Analytics.

“For Latin American families, the U.S. has always been a haven to their wealth,” said Jorge Escobar, chief executive officer of Miami-based property investment firm Black Salmon Capital and former global head of HSBC Holdings Plc’s private bank for the Chilean market. “Real estate is becoming the major asset class where wealthy families and all types of investors are seeking more protection.”

Drake Real Estate Partners now has completed more than 40 deals, working with regional peers to source off-market properties the firm can refurbish to add value. Its strategy contrasts with that of Inditex SA founder Amancio Ortega, the richest investor from a Spanish-speaking nation investing in U.S. real estate, according to the Bloomberg Billionaires Index. Focusing on wealth preservation, his portfolio includes landmark properties such as Manhattan’s historic Haughwout Building, Miami’s tallest office tower and a $230 million office block bought this month in Washington.

High prices have pushed property investors beyond metropolises such as London and New York, but many opportunities are often too small for pension funds and other institutional investors such as Blackstone Group Inc. Private investment firms backed by rich families, though, are increasingly taking advantage.

Injecting as much as $20 million into each deal, Drake Real Estate Partners has snapped up apartment blocks in U.S. markets including North Carolina and Ohio. The firm has also acquired warehouses in Delaware, Tennessee offices and a retail property in Texas.

Ibanez’s firm also underscores the growing appetite among wealthy families for co-investing as more of them take control of their finances. Following the lead of billionaires including Dell and Bill Gates, many have family offices that act like private-equity firms, buying stakes in companies or acquiring them outright. This year, UBS’s top banker to billionaires warned that more clients are sidelining financial institutions as they complete private deals without advice from investment banks.

“Our families specifically want to see investments sponsored by other families,” said Roszell Mack III, founder of New York-based Mack & Co., an advisory firm to rich families and individuals -- including Nicolas Ibanez on his firm’s new fund. “They see everything in the market, given they are a significant capital source.”

The Ibanezes can find deals within their own family through Nicolas. His firm is near New York’s Times Square, in the heart of a top-tier office market it avoids for its portfolio. Ibanez is aiming to more than double assets over the next three years through broadening his investor base beyond mostly rich Latin American families. Swapping retail for real estate, Ibanez is reshaping his family’s riches.

“The transition has taken pretty much the whole decade,” Ibanez said. “If you’re an entrepreneurial family that has historically been more of a company builder, suddenly not being that and having wealth can be a problem. You really need to change your mindset from operator to investor.”

--With assistance from Gillian Tan.

To contact the reporters on this story: Ben Stupples in London at bstupples@bloomberg.net;Maria Jose Campano in Santiago at mcampano@bloomberg.net

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Peter Eichenbaum

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