The year 2018 has been one of transition and expansion at the Fortress Investment Group. After two decades of headline-making leadership in the investing world, the past year was marked by Fortress’s integration into one of the world’s most prominent financial conglomerates, the SoftBank Group Corporation. The purchase — for $3.3 billion — has set the foundation for the Fortress’s continued participation in exciting and cutting-edge developments in the realms of real estate and private equity funds.
Since its founding in 1998, Fortress Investment Group has made a prominent name for itself. First as an assertive hedge fund that expanded into a global financier and investor. Then, after its first decade of growth, becoming the first such fund to go public with an initial public offering (IPO) on the New York Stock Exchange (NYSE) in 2007.
Purchase by Softbank
The purchase by SoftBank occurred one decade later, with a closing date in December of 2017. Therefore, this past year has been dominated by Fortress’s operations — overseeing $40 billion in global assets managed independently by principles Randal Nardone and Wes Edens (based in New York) and Peter Briger (based in San Francisco) — being integrated into SoftBank’s global strategies.
SoftBank is a company dedicated, in part, to financing and supporting the information revolution — which includes its ownership stake in U.S. telecom giant Sprint, along with major stakes in Alibaba and Uber and a host of other new economy firms. Its Vision Fund — backed by such tech heavyweights as Apple and Qualcomm — is a driving force in providing financial backing for innovative technologies, many of which are still in the incubation stage, including artificial intelligence, robotics, the Internet of Things (IoT), and renewable energy. But its strategy also includes large-scale projects that are building the infrastructure for high-tech innovation, such as the development of the largest solar power project in the world in Saudi Arabia.
According to a March 28, 2018, CNBC story, the Fund’s CEO Rajeev Misra stated that:
“The fund aims to be the largest shareholder in 100 technology companies around the world after it has finished investing all of its money … The goal is to create the biggest ecosystem of tech companies in the world.”
It’s probably no accident that Misra, a native of India, was head of strategic finance at Fortress before being hired by SoftBank in 2014 to run the Vision Fund. This past June he was promoted to executive vice president of SoftBank’s Board of Directors.
“Fortress’s excellent track record speaks for itself, and we look forward to benefitting from its leadership, broad-based expertise, and world-class investment platform,” said SoftBank’s founder and CEO Masayoshi Son in a statement when the purchase was announced. “For SoftBank, this opportunity will immediately help expand our group capabilities, and, alongside our soon-to-be-established SoftBank Vision Fund platform, will accelerate our SoftBank 2.0 transformation strategy of bold, disciplined investment and world-class execution to drive sustainable long-term growth.”
The purchase of Fortress was one of SoftBank’s first forays into incorporating an asset management firm into its holdings. Fortress retains day-to-day control of operations as part of the deal’s approval by the Committee on Foreign Investment in the United States. According to the Financial Times, SoftBank has representation on the Fortress board but is restricted in influencing it operationally.
Adaptation has been necessary for both sides, but the past year has been a success. Fortress has continued to build its broad portfolio of real estate, senior housing, and infrastructure investments, especially with its affiliates like New Senior Investment Group and the Fortress Transportation and Infrastructure Investors.
“It’s been a really interesting experience both being public and private again. And I’d say we’re enjoying our time being private. The news with SoftBank has been exactly as advertised,” Edens said during a May 25, 2018, interview on CNBC about the deal. “I think we’ve had the best twelve months in the firm’s history. The most recent twelve months is probably not a coincidence. So, there are a lot of positives to take out of it.”
Fortress’s being the first hedge fund to go public led, in turn, to it’s being the first private equity firm to be delisted. The deal was based on Fortress Class A shares being converted at $8.08 per share and their common stock ceasing to be traded on the NYSE. The closing date was December 27, 2017. It was a change that the leadership at Fortress felt good about.
“You know, it removes one extra job that we have to do, right. You think of it when you’re the head of a public company, you do the job of whatever your investing day job is and then you have to be the CEO — or the co-CEO in our case — and to go out and sell the company to investors and spend a lot of time on other things,” explained Edens in the CNBC interview. “So, fiscally, taking that off the table has made things a little bit simpler. No more quarterly conference calls and that’s probably a good part of what has been successful for us.”
The long-term strategy appears to be that Fortress and the SoftBank Vision Fund, while remaining separate entities, will work in tandem to solidify their current strategies — while making inroads into the private equity industry. Currently dominated by companies like the Blackstone Group, Carlyle, and Kohlberg Kravis Roberts, it has been reported that Son has his eye on becoming a player on this level, with Misra heading up the joint strategy from London. SoftBank’s clients in Asia and the Middle East can be introduced to Fortress’s products and services as a matter of course.
“I think it is truly a visionary strategy. By acquiring Fortress, SoftBank is now getting world-class financial management expertise. So, SoftBank is really leapfrogging into the asset management and private equity business,” explained Jesper Koll, CEO of WisdomTree Japan K.K., to CNBC in an interview at the time the deal was announced in 2017. “SoftBank is really aggressively moving into the asset management, into the private equity, into the acquisitions business. It’s a very, very good technology company, but on top of that it actually is building a super platform for a new future.”
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A Big Plunge Into High Profile Real Estate
Fortress’s interests and experience in real estate is already beginning to be integrated into SoftBank’s support of tech startups and the broader economic infrastructure of the communications revolution. Probably not coincidentally the Vision Fund has begun investing more heavily in real estate-related startups, such as the construction company Katerra, real estate brokers Compass and OpenDoor, and co-working space provider WeWork.
The merging of SoftBank’s interest in the future of tech and Fortress’s real estate experience has no higher profile project than in the $2.5 billion TSX Broadway development that was announced in 2018.
With partners L&L Holding Company and Maefield Development, Fortress is backing a mega-development in New York’s Times Square that is not only the kind of traditional hotel and entertainment project that dominates one of the world’s most famous places, it’s also expected to be an innovative, world-class retail space. The initial press release promises that it will “provide a single brand with the most powerful marketing tool in the world, creating a dominant brand presence in the heart of the world’s most visited pedestrian destination.”
Press reports hint that tech-leaders like Amazon, Facebook, Samsung, and YouTube have already expressed interest in the project, along with more traditional goliaths like Disney and Walmart.
The underlying strategy is to create a retail space so cutting edge and spectacular that it becomes a destination in and of itself. This will then create a feedback loop of social media activity that will keep the space at the forefront of the “cloud” commons. Attracting traditional tourists and consumers — along with hosting e-sports events — the space will also feature interactive experiences based on virtual reality (VR) and other developing technologies, with the products themselves expected to have their public rollouts hosted at TSX Broadway.
The project will feature 75,000 square feet of retail, along with a luxury hotel taking up most its 46 floors, an LED wraparound screen covering 18,000 square feet, and not only the complete renovation of the historic Palace Theater — but its relocation 30 feet above its current location, into the 3rd floor of the new building. An exterior stage — the first permanent performance stage in Times Square — will also jut out from that 3rd floor.
Tiffany & Co. Building
Not quite as high profile as Times Square, Palm Beach, Florida’s Worth Avenue is still one of the most valued retail areas in the United States. In October Fortress closed on one of its iconic properties, the 16,374-square-foot Tiffany & Co. building.
Bought for $20 million, the building dates to 1950. It features over 11,000 square feet of retail space, including the anchor store of the iconic jewelry company. The current tenants are expected to remain, with additional class-A office space being planned for the second floor. Fortress financed the deal via an affiliate and is partnering with Kean Development and Hyde Retail Partners on the project. The building is an architectural gem, anchoring one of the world’s most famous retail shopping streets that is also in an area — southern Florida — in which Fortress Investment Group has other investments.
Via its affiliate CF Grocery Distribution PropCo, Fortress bought the 769,000-square-foot SuperValu distribution center in Pompano Beach, Florida, for $66.4 million. The deal is another significant investment in Fortress’s focus on its southern Florida portfolio.
Real Estate Credit Fund
The first year as part of SoftBank also saw Fortress Investment Group begin the process of creating two new real estate funds, one to provide direct private-equity credit and the other to purchase debt and other real estate assets. They are sure to support the company’s expansion into the private-credit sector.
Expanding Into Other Realms
Fortress’s first year as part of SoftBank also included a number of innovative investment products in areas other than real estate. With banks facing increased regulatory conditions, the opportunity for private funds that provide direct lending pools has opened up. Companies like Ares Management, HPS Investment Partners, and Tennenbaum Capital Partners have been expanding into this market and Fortress has as well. Reports suggest that Fortress is raising $2 billion for its first direct-lending fund. This will be strategically integrated with other Fortress investments and the operations of its affiliates.
Patent Troll Fund
In May, Fortress announced it was raising $400 million for a fund that would pursue legal remedies for the violation of intellectual property (IP). The goal of the fund is to curtail IP violations by both purchasing the patent portfolios of companies and lending money to those that are protecting their own patent portfolios.
Directly in line with SoftBank’s tradition of supporting cutting-edge tech, in June iPass announced $20 million in credit from affiliate funds of Fortress. iPass provides mobile connectivity in many parts of the world on a software-as-a-service (SaaS) platform. It’s the largest Wi-Fi network in the world, offering over 64 million hotspots in a wide variety of public spaces with an app-based network.
The financing was secured with iPass’s patent portfolio. Growing the company’s iPass SmartConnect and Veri-FiTM product lines are the immediate goals for the infusion of cash.
Wes Edens Side Hustles
Though not directly related to the operations of Fortress, Edens’ partnering with Egyptian billionaire Nassef Sawiris in August to buy a majority stake in the Birmingham, England-based Aston Villa Football Club should be noted. A co-owner of the NBA’s Milwaukee Bucks since 2014, he’s also a strong backer of eSports, including as owner of the League of Legends team FlyQuest.
A competitive skier earlier in life, a project near to Edens’ heart opened in 2018. The $100 million Caldera House luxury hotel in Jackson Hole, Wyoming, was guided and backed by Edens.
And that wasn’t the only grand opening on Edens’ plate. The Fiserv Forum in Milwaukee, which Edens helped conceptualize, opened in August as the new home of the Bucks and Marquette University’s men’s basketball team.
“We wanted to bring the great light and outdoors of Wisconsin into the arena. You see a lot of natural light, you see a lot of glass. You want this place to be the place to come to for sporting events, for concerts, ” Edens explained in an interview with WTMJ-TV in Milwaukee while touring the new arena, while it was still under construction, and discussing his role in the community as a team owner.
“I just wanted to be a good steward. I wanted to engage the community. I wanted to use it not just as a way for people to enjoy the team, but I think it can make a meaningful impact.”
Clearly, it’s been a year of change and expanded opportunity at Fortress Investment Group. Already a company with a global footprint, its integration into the operations of an even larger global powerhouse has opened new vistas and investment vehicles that are sure to keep it in the business-sector limelight.
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