When David Mongeau and Piers Talalla left CIBC in 2005 to launch their own investment bank, they set a dubious record. The small new office they leased in London set them back a jaw-dropping £100 a square foot, for an annual outlay of more than $500,000. At the time, no one else had paid more.
But the Canadian duo knew their unknown Avington Financial would need all the help it could get. And the right address was essential.
The best option was Mayfair, a posh West London neighbourhood packed with private equity and hedge-fund managers, where shops are as likely to offer leases for mega-yachts as stupidly expensive coffee, and where rents for small flats can set you back £2,000 ($3,440). That's per week. One private Mayfair restaurant charges €125 ($198) for a single bowl of white truffle pasta.
The address seems to have helped. In 2006, Avington, whose specialty is hospitality deals, was second in a Bloomberg ranking of global hospitality M&A advisers and counted Terra Firma Capital, one of the world's biggest private equity funds, among its clients. A year later Avington was ranked a still respectable seventh, just behind Merrill Lynch. Not bad for a firm with only two partners and a small number of professional and support staff in an apartment-size office on Curzon Street.
This year Avington is making Mayfair's moneyed mob take notice again.
Mr. Mongeau, 53, who is chairman, and Mr. Talalla, 45, CEO, are in effect calling the bottom of the roughed-up luxury hotels market by launching a hotel buyout fund called Avingstone, aimed at acquiring big hotel properties in Europe. By last week they had raised €310-million. Their target is €500-million.
Avingstone's move is daring. Its founders know a thing or two about the advice industry and have the personal wealth to prove it: Mr. Mongeau commutes to London from his home in Monaco and squeezes his lanky 6-foot-6 frame into a Ferrari 360, while Mr. Talalla owns a 1936 Bentley. But they have never run a fund and their timing could be off. Maybe the hotel market has not reached bottom. If the recovery stalls out, as Britain's seems to be doing, hotel values - down as much as 40 per cent since the recession started - could plunge again.
If they're wrong, some of the savviest guys in the real estate business will be wrong with them. The fund's lead investors are the publicity-shy English brothers Ian and Richard Livingstone whose London & Regional Properties is one of Europe's largest private real estate companies. Their €9-billion portfolio includes more than 50 upscale hotels, among them Hilton Park Lane and Hilton Trafalgar Square, both in London. Other Avingstone investors include a southeast Asian sovereign wealth fund and "a couple of dynastic European families," Mr. Mongeau says. He and Mr. Talalla are contributing considerable dollops of their own money, but won't say how much.
They are boosting the appeal of the fund by putting its biggest investors on the investment committee and charging the industry standard 2-per-cent asset management fee once deals are done. Most other funds charge the fee before the money is even invested.
Why now? Because hotel values dependably rise and fall with GDP rates, though at amplified levels. If you believe GDP is more likely to rise than fall, as the investors in the new Avingstone expect, now is the time to load the buyout gun.
A small number of other fund managers agree. Christopher Voutsinas, the head of acquisitions at Heitman, a property investment management firm in London, is launching a €505-million European commercial property fund. "We're close to the bottom," he says. "David Mongeau is confident and has a lot of international experience. He knows it's better to be a bit early than a bit late."
