June 28, 2018 / 11:09 AM / in 6 months

Exclusive: Paulson's top real estate executives start own firm

BOSTON (Reuters) - Billionaire investor John Paulson’s top real estate executives are launching their own investment firm with $1 billion and the hedge fund manager’s blessing, sources familiar with the matter said.

Michael Barr, a portfolio manager who headed real estate investing at Paulson & Co, and Jonathan Shumaker, a Paulson partner, will be spinning out the firm’s two existing real estate funds into an independent private equity firm.

Cross Lake, based just a few blocks north of Paulson’s Midtown Manhattan offices, will continue to oversee Paulson’s Real Estate Recovery Fund, LP, launched in 2010, and Paulson Real Estate Fund II, LP, launched in 2013. The two funds have roughly $1 billion in assets. The entire real estate team at Paulson will be moving to Cross Lake, the sources said.

There are benefits to splitting for both sides, say industry analysts noting that the move comes at a time research firm Preqin has said that prices for real assets and competition among bidders are likely to rise in the years ahead.

Paulson, who earned billions for himself and his firm by betting against the overheated housing market during the financial crisis, is expected to keep his personal money in the real estate funds and keep investing with the team in the future, one of the sources said.

By letting Barr and Shumaker move on, Paulson is shrinking costs by eliminating their salaries and expenses of running and marketing the portfolios. For Cross Lake, the team is leaving the tarnished Paulson brand to make a name for themselves independently.

Since joining Paulson a decade ago, Barr, 47, and Shumaker, 40, have worked together on making investments primarily in residential land, offices and hotels throughout the southeastern, southwestern and western United States.

Now they join the long line of senior executives and portfolio managers who have left Paulson & Co over the last years as the hedge fund’s assets have dwindled from a peak of $38 billion in 2011 to roughly $8.7 billion in January.

Even as some of Paulson’s prominent funds had off years, performance at the real estate funds has been a bright spot for the firm, returning over 20 percent on average per year, based on the current value of the investments and completed sales.

The real estate funds often bought land from developers that came with appropriate permits and some infrastructure like roads and sewers. Among the funds’ deals was an investment in Newport Beach-based William Lyon Homes, which sold shares to the public in 2013 as the housing market recovered.

As Paulson’s assets have shrunk, Paulson earlier this year laid off at least four senior executives as he focuses the firm on its core expertise, including mergers.

This year, Paulson’s biggest funds are in the black with the Paulson European Opportunities Master Fund up 9 percent since January while the Paulson Pure Spread Fund is up 6.5 percent, a person familiar with the numbers said.

Additional reporting by Lawrence Delevingne in New York; Editing by Cynthia Osterman

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