Peter Kleinberg: A Walk on the Slippery Rocks — Credit Enhancement and CO-GP Investment.

Episode 7 of Offshoot brings my long-time friend and acquaintance, Peter Kleinberg, onto the show.

Peter is Vice President of ESI Ventures, a diversified and opportunistic commercial real estate investment firm that focuses on the acquisition, development, and repositioning of value-add and adaptive reuse projects through a variety of positions in the capital stack.

Importantly, ESI plays in the space of CO-GP investing, placing money alongside a project sponsor as they concurrently raise more commodity LP equity investment.  As a feature of that investment, ESI may also provide credit enhancement for their operating partners who lack the net worth and liquidity to secure bridge or construction debt.

The space of credit enhancement is loaded with nuance and complexity as significant downside risks exist. Peter goes deep with me on the deal attributes and structures which allow ESI to mitigate some of these risks. I hope you appreciate the prying I did to illuminate how well they see these risks, and how they are protecting themselves. Throughout the exchange Peter comes through as thoughtful and deeply aware of the fact patterns associated his investments and the industry as whole.  Peter’s one of the younger guests I have had on the show and I think you will see why he’s every bit as qualified to be here – he’s fully got the plot.

Listen for some of the highlights:

  • Where ESI invests in the capital stack (up to 98%)
  • The size of ESI’s investments and the assets attached to those investments.
  • The nature of the emerging manager partnerships and the high level of expertise and experience their partners’ exhibit.
  • Institutional investment managers are not truly discretionary, it all must fit in their box.  ESI is discretionary as they are an extension of a small family office.
  • Why net worth and liquidity are a central function of the commercial real estate space.
  • CO-GP investment and credit enhancement pricing mechanisms employed by ESI to secure adequate compensation.
  • The real estate business is the pursuit of transactions, people are at the core of that.
  • Unknown, unknowns are huge blind spots which deserve respect and should be mitigated.
  • Run your development business like a business. Be thoughtful, persistent, and fill the deficiencies that come with each investor rejection.  Ask questions; there are no bad questions.
  • Your pitches have a marketing aspect to them.  Make them professional and draw in the reader.
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