The King of Commercial Real Estate

MacFarlane knew his path lay elsewhere. He grew up poor, sharing a couch with his sister until he was 13 because neither had a bed. He wanted to make sure he’d never be poor again, and he couldn’t guarantee that working for the syndicator. So in 1987 he launched his first company, MacFarlane Realty Advisors (MRA), to provide real estate investment management services to institutional investors. MacFarlane started developing and building an apartment complex on the north side of Denver in the midst of a downturn. “In figuring out a way to hold on to that asset, I learned a lot of lessons about the value of liquidity and having good real estate for the long term. I eventually sold it six or seven years later, for a profit, but at the time I didn’t think I was ever going to make a profit on it.”

In the early 1990s, CalPERS allocated capital to MRA to invest in real estate. MRA, and later, MacFarlane Partners wound up managing a portfolio of real estate assets with a market value of approximately $300 million. But the firm at the time was hemorrhaging cash. “As opposed to, say, John Rogers, the stock-and-bond guy, if he gets $50 million from a pension fund, it’s just him and his computer—he’s in business and probably making money. But a real estate investment management business needs a lot of people and therefore a lot of skill to be profitable,” MacFarlane says. “You need acquisition people, you need asset management people, and you need a back office. All that stuff for a consultant to say that you’re a qualified risk. Typically they also want to know that you have done it for a long time, at some scale, for others. So it’s a very difficult business to break into.”

THE MINNOW SWALLOWS THE WHALE
At this time, serendipity stepped in. While MacFarlane was looking for ways to either sell MRA or merge it with another firm, Mellon Bank was looking to sell its real estate investment management subsidiary, Mellon/McMahan. It was a broken firm, so traditional, larger companies weren’t interested even though it had a who’s who list of clients including the pension plans of General Motors, AT&T, and Verizon. “Because we were small and losing money, we needed Mellon/McMahan. So I took a risk and bought it.”

MRA, which had $300 million in assets and five employees at the time, was also a lot smaller than Mellon/McMahan, which employed more than 80 people and managed $1.8 billion in assets. “I remember when I bought it a news article asked if the minnow was swallowing the whale,” MacFarlane says. His firm didn’t have the money for the deal, but he somehow convinced Mellon that he did and then went to see lenders. “Once you have a deal, it’s a lot easier to raise the money,” MacFarlane says with a chuckle. When the deal closed, he let go two-thirds of Mellon’s staff and proceeded to reinvigorate the business. In 1996, he sold

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