Victor MacFarlane’s proudest business accomplishment isn’t his involvement in the grand, 80-story Time Warner Center in New York City. Nor is it his 20-year track record of providing superior returns for his institutional clients. According to MacFarlane, he’s most proud of purchasing and revitalizing a shopping center that serves both high- and low-income predominantly black communities in Los Angeles County.
MacFarlane, CEO of MacFarlane Partners (No. 1 on the B.E. Private Equity Firms list with $20.1 billion in capital under management), says the 186,800-square-foot shopping center in Ladera Heights showed many in the investment community that money can be made in areas that serve low-income communities. “They thought it was all going to be social investing,†MacFarlane recalls. “To demonstrate that you can make a difference in these communities, and make money, was a huge, wonderful thing.â€
The project, undertaken by Johnson/MacFarlane Partners, a joint venture between Earvin “Magic†Johnson’s Johnson Development Corp. and MacFarlane Partners, acquired a 75% interest in the property back in 1996 with capital from a $50 million investment from CalPERS, the retirement fund for California’s public employees and the nation’s largest pension fund. MacFarlane, 57, says the big institutions thought investing in the urban markets meant little, if any, return on investment. “Another institutional investor had neglected the center. The community wasn’t shopping there because the wrong element had taken over. So we turned it around, made it safe.â€
The shopping center became the home of one of the first Magic Johnson Starbucks and Magic Johnson TGI Friday’s and helped revitalize a community. But don’t call it charity. It’s pure business. In fact, the property generated a 30% return when it was sold nine years later for $52 million. “When we first started talking about this urban investment program, skeptics thought we were talking about social investing,†MacFarlane says. “But we were saying no, we can deliver institutional level returns by investing in this area.â€
That sort of vision is how MacFarlane built up an impressive real estate portfolio that consists of retail and affordable housing in inner cities, luxury residential and mixed-use high rises in upscale locations, transit-oriented developments along commuter corridors, and master-planned communities. And while the slowing real estate market has him concerned, he’s confident his San Francisco-based company is positioned well enough to reap healthy returns–even in this unstable environment. It certainly doesn’t hurt that the firm’s returns have historically exceeded 20%.
“There wouldn’t be any blacks in real estate private equity without Victor’s towering successes,†says Derrick Banks Mashore, CEO of Coda Capital Investments L.L.C., a New York-based real estate private equity firm. “He’s the godfather, the pioneer, a dominant player in the urban space, and one of the most successful investors of our era.â€
CAPITAL GAINS
For MacFarlane, the sweet spots–where his team focuses its investment activity–are in the urban areas of gateway cities. These urban areas serve as a departure or arrival point for international flights. With the exception of Chicago, all their