Given choices of where to start work at a company, Victor MacFarlane chose the real estate department and went on to start his own real estate business.
Victor MacFarlane is the founder and managing principal of MacFarlane Partners, one of the leading real estate investment management firms in the United States with $10 billion in assets under management. The firm specializes in high-yielding real estate development, redevelopment, and repositioning projects in urban and high-density suburban areas, as well as single-family housing development projects in major metropolitan areas nationwide.
MacFarlane holds a master’s degree in business administration from the University of Pittsburgh and a law degree from the University of California at Los Angeles. In an interview with writer James Carberry, he talked about how he got into real estate and how he started his firm, and offered suggestions for those interested in real estate careers. Carberry collaborated with Stan Ross, chair of the board of the University of Southern California’s Lusk Center for Real Estate, in writing The Inside Track to Careers in Real Estate, recently published by the Urban Land Institute.
How did you get started in real estate?
After I finished business school and law school, I started interviewing with different employers. My sister was working in human resources for Aetna Life & Casualty Company, and she suggested I apply there. I interviewed with the company’s law department, bond department, and real estate department, and got offers from all three. I decided on real estate. There was something about the people in real estate and the work they were doing that intrigued me. I started as an analyst in the acquisitions area. While I was there, I was involved in the acquisition and asset management of about $1 billion of assets.
What was your next position?
After I had been at Aetna for about four years, I was recruited by Daseke, a national real estate syndicator and investor, to start a regional acquisition office in the Denver area. We formed joint ventures to develop apartment buildings. During the three years I was with Daseke, I got a sense of what it was like to be an entrepreneur because I worked on a commission basis based on the amount of properties I acquired. If we weren’t successful, we didn’t get paid.
What other ventures were you involved in?
While still at Daseke, I started a development company and developed a 208-unit apartment community. I also participated in a venture to develop an affordable housing project in Hartford, Connecticut. It was suggested to me that with my background, I should start a firm that provided real estate investment advisory and management services to pension funds. So I started MacFarlane Partners in 1987 and began approaching pension funds around the country. It was tough getting business. I did consulting work for the Pennsylvania Public School Employees’ pension fund, and I continued to call on other funds about every six weeks for three years.
Finally, our big opportunity came with an engagement from CalPERS, the California Public Employees’ Retirement System. I moved to Sacramento, CalPERS became our biggest client, and our business grew. Eventually we got to the point where we had $250 million to $300 million of institutional capital under management and, to continue growing the business, we had to merge with another company or find another opportunity.
Mellon Bank owned a real estate investment management company, with about $2 billion in assets under management. Because the company had problems, no one would offer much for it. We convinced the bank that we had the capital to buy the company, which we didn’t at the time, but we managed to find the capital after Mellon agreed to sell the company to us. We succeeded in turning the company around, and in 1996 we sold it to GE Capital. I remained with GE as CEO of the renamed firm, GE Capital Investment Advisors. After my three-year contract commitment with GE ended in 1999, I resigned to restart MacFarlane Partners.
How did you restart the company?
I hadn’t sold to GE Capital two fledgling businesses of the old MacFarlane Partners. Those businesses—urban and housing—became the foundation for the new MacFarlane Partners. Our urban business was originally started in 1994 when CalPERS asked its investment managers to come up with a model for inner-city investing that enabled institutions not only to achieve social goals, but first and foremost to realize their economic goals. Investment in the inner city traditionally had been perceived as so-called social investing, in which investors were willing to invest capital to achieve social goals regardless of whether they made money. So we developed a plan, based on research that demonstrated that investments in urban communities did justify institutional investment and would generate competitive, risk-adjusted returns to alternatives available to them, thereby enabling institutions to achieve both goals. To convince institutions to buy into the plan, we had to educate them on the opportunities in the inner city, which has enormous buying power but has long been an underserved market. As a result of our efforts, we were able to raise an initial $50 million in capital for investment from CalPERS.
What success have you had in attracting institutional investment?
More than a decade ago, our company was one of the first to recognize the opportunities for institutional investors in high-density urban markets. Since then, the inner city has moved from the fringes to the mainstream of institutional investment, and many funds have included urban development and redevelopment as a high-yield component of their investment portfolios. We have a well-established fund for investing in urban communities, and many pension funds are investing in this market.
What is your advice for those who are interested in careers in real estate?
Go to one of the top business schools. Join a very good company whose business is in an area that interests you. In investment management, for example, some of the best training traditionally has been with insurance companies and banks. Now it has primarily shifted to the investment managers themselves. Once you acquire the requisite experience, knowledge, and skills, you can decide whether you want to continue working for a company or move to another to continue your career progression or, ultimately, if that is your desire, start your own business.
What are your plans for the company’s growth?
Over the next five years, we expect to double our capital under management from $10 billion to $20 billion, of which $10 billion to $12 billion will be for our urban business and $8 billion to $10 billion for single-family housing development. We are hiring more people and expanding into new markets and new programs, such as a program to invest in the companies of emerging developers to help them grow their businesses. We are on a mission to attract more institutional investment in urban markets. Why? Because that is where they should be to achieve the competitive returns they desire.