Crain's Chicago Business - Published May 17, 2007

Newcastle chief leads big investors off the beaten path

By Alby Gallun

After raising $500 million, much of it from institutional investors, Mike Haney is out to show them that there's more to Chicago real estate than downtown high-rises.

He's investing their money in neighborhoods like Uptown and South Shore, places big pension funds and life insurance companies rarely go because they can't find the big transactions they prefer or they don’t know the market well enough.

Mr. Haney has attempted to solve that problem by combining their money with his expertise. “It would be prohibitively expensive for an institutional investor to buy a $10-million asset in a market that they were completely unfamiliar with,” says Mr. Haney, president and CEO of Newcastle Ltd., a Chicago-based real estate firm he founded seven years ago. "We can do that more efficiently because we understand the market at the ground level and we have been working in the neighborhoods for many years.”

Backed by firms like Des Moines, Iowa-based Principal Financial, Newcastle has already invested $40 million in 12 properties with about 500 apartments. Most of the properties are in Uptown, an improving neighborhood where Mr. Haney has lived for seven years.

Newcastle has teamed up with big investors to buy real estate in the past but is primarily known as a real estate adviser to big non-profits, such as the Art Institute of Chicago, the YMCA of Metropolitan Chicago and Loyola University Chicago.

Last year, Mr. Haney, 47, decided to expand the investment side of his business, raising $200 million in equity from investors like Principal and securing another $300 million in debt. He declines to name the other equity investors or the debt source.

Newcastle will invest about two-thirds of the money in apartments and retail property, Mr. Haney estimates. He likes North Side neighborhoods because he knows them well and it’s hard to build new apartment buildings there, limiting competition

“Mike understands urban real estate and has a very good ability to understand risks and rewards,” a Principal spokeswoman says in an e-mail.

He’s targeting acquisitions in the $5-million to $50-million price range, small game for institutional investors. And he’s hunting on turf that has historically been the domain of the small, entrepreneurial investor.
Newcastle “seems to be the first organization in my mind that has successfully blended the institutional mind-set and criteria with a non-institutional product,” says Lee Kiser, principal of Kiser Group, a Chicago-based brokerage that specializes in North Side apartments and has sold a few properties to Newcastle.
Amid an improving apartment market, it’s a good time to be a landlord. Occupancies on the North Side are back up, and rents could rise as much as 9% this year, Mr. Kiser estimates.

The son of an accountant and school teacher, Mr. Haney grew up in Chicago’s Beverly neighborhood, leaving to attend Georgetown University in Washington, D.C. He returned to take a job in real estate lending at Northern Trust Bank, getting his MBA at night at the University of Chicago’s Graduate School of Business.

Mr. Haney went on to jobs at Rubloff Inc. and LaSalle Partners, where he oversaw the development of the 650-acre Cantera business park in west suburban Warrenville. He quit LaSalle in 1998 to start Newcastle, which now employs about a dozen people.

An avid telemark skier, Mr. Haney owns a house in the ski town of Crested Butte, Colo. His right arm in a sling — he’s recovering from reconstructive surgery on a shoulder he dislocated about a dozen times while snowboarding over the years.

Meanwhile, he’ll be busy looking for places to invest the $460 million left in his war chest.

“It’s a large sandbox and there are lots of opportunities out there, and it’s important that we quickly understand an opportunity and decide whether it’s something that will fit with our portfolio,” Mr. Haney says. “The biggest challenge for this platform is focus.”

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