Victor MacFarlaneâ€™s proudest business accomplishment isnâ€™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, heâ€™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. â€śThey thought it was all going to be social investing,â€ť MacFarlane recalls. â€śTo demonstrate that you can make a difference in these communities, and make money, was a huge, wonderful thing.â€ť
The project, undertaken by Johnson/MacFarlane Partners, a joint venture between Earvin â€śMagicâ€ť Johnsonâ€™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 Californiaâ€™s public employees and the nationâ€™s largest pension fund. MacFarlane, 57, says the big institutions thought investing in the urban markets meant little, if any, return on investment. â€śAnother institutional investor had neglected the center. The community wasnâ€™t shopping there because the wrong element had taken over. So we turned it around, made it safe.â€ť
The shopping center became the home of one of the first Magic Johnson Starbucks and Magic Johnson TGI Fridayâ€™s and helped revitalize a community. But donâ€™t call it charity. Itâ€™s pure business. In fact, the property generated a 30% return when it was sold nine years later for $52 million. â€śWhen we first started talking about this urban investment program, skeptics thought we were talking about social investing,â€ť MacFarlane says. â€śBut we were saying no, we can deliver institutional level returns by investing in this area.â€ť
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, heâ€™s confident his San Francisco-based company is positioned well enough to reap healthy returnsâ€”even in this unstable environment. It certainly doesnâ€™t hurt that the firmâ€™s returns have historically exceeded 20%.
â€śThere wouldnâ€™t be any blacks in real estate private equity without Victorâ€™s towering successes,â€ť says Derrick Banks Mashore, CEO of Coda Capital Investments L.L.C., a New York-based real estate private equity firm. â€śHeâ€™s the godfather, the pioneer, a dominant player in the urban space, and one of the most successful investors of our era.â€ť
For MacFarlane, the sweet spotsâ€”where his team focuses its investment activityâ€”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