By Jada A. Graves

Receiving a Bachelor's of Science degree in engineering is not the most traditional means of becoming a real estate fund manager, but it is coincidentally the track followed by both Edward F. Pierzak, Ph.D and Terry D. Senger, portfolio managers for the Henderson Property Fund. After receiving their first respective degrees, Pierzak and Senger both decided to pursue graduate degrees in business in order to work in commercial real estate. According to Pierzak, going into real estate was the right decision and one he cannot fathom having done differently.

FUND PROFILE AT INCEPTION:

GROSS ASSET VALUE: $182 million NET ASSET VALUE: $92 million NO. OF INVESTMENTS: 9 LEASED: 93% LEVERAGE RATIO: 49.7%

"I've always enjoyed the asset class," Pierzak says. "I'd be hard pressed to say I'd be doing something else rather than working in real estate."

Eventually, both director of research and portfolio manager Pierzak and director and portfolio manager Senger landed at Henderson Global Investors, an investment management company that handles more than $119 billion in assets under management worldwide. In the third quarter of 2005, Henderson launched the Henderson Property Fund by purchasing a nine-property portfolio from the U.S. Property Fund, mainly including multifamily properties.

Established as an open-ended commingled fund, the Henderson Property Fund is slightly different from other real estate investment vehicles usually spotlighted in this column. Senger and Pierzak explain that Henderson Property Fund invests directly in real estate assets.

"In the acquisition marketplace, our competitors are occasionally REITs," Pierzak says. "Our fund has the flexibility to invest in a variety of opportunities, both equity and debt, and even in REIT shares."

Balancing Act

While Henderson Property Fund is able to invest in REITs, it currently has no REIT allocation. Henderson Global Investors does have three offshore funds with REIT allocations—Horizon Asia Pacific Property Securities Fund, Horizon Pan Europe Property Securities Fund and Horizon Global Property Securities Fund—which are all managed by Patrick Sumner. Senger and Pierzak say their plan is to first focus on Henderson Property Fund's existing portfolio.

PROPERTY TYPE TARGETED STRATEGIC ALLOCATIONS FOR 2006-2007 (minimum and maximum)

APARTMENT: 25%–30% RETAIL: 25%–30% INDUSTRIAL: 20%–25% OFFICE: 20%–25% SPECIALTY: 0%–10%

"Right now, we're in the mode to balance and grow our portfolio. Through active management, we also have opportunities to improve near-term operating performance and increase property values," Senger says.

In order to do this, they are readjusting the portfolio based on sector and geographical allocations. "Across the four major property types, we would like to see a slight overweight in apartment and retail, and slight underweight in industrial and office," Pierzak says. "Also, we currently are overweight in the South. Ideally we would like to be well-balanced across the South, East, West and Midwest. We're going to target new acquisitions in office, industrial and retail in these other regions."

According to Senger, two asset sales will position the portfolio toward this goal. The first asset is an apartment complex located in the South. "The other asset is a smaller property located in the Midwest. We see it as offering limited potential for growth," he says.

Manager of Partners Program

Helping Senger and Pierzak get into the game is Henderson Global Investors' Manager of Partners program, a method for identifying growth opportunities. As the two fund managers explain it, the program offers institutional investors the opportunity to access increased deal flow and/or better risk-adjusted returns via programmatic investment with operators.

Geographic Region Targeted Strategic Allocations for 2006-2007 (minimum and maximum)

MIDWEST: 20%–30% WEST: 20%–30% EAST: 20%–30% SOUTH: 20%–30%

"It's a program where we marry institutional capital with an operator who has a competitive advantage. It can be viewed as entrepreneurship in an institutional wrapper," Pierzak says.

Those benefits include institutional access to unique strategies and deal flow, potentially better risk adjusted returns and avoidance of the auction market. Operator benefits, according to Pierzak and Senger, include getting an efficient source of capital as well as potential diversification of capital sources. The Henderson Property Fund can use the Manager of Partners program to invest a maximum 25 percent of its assets under management.

Another boon to Henderson Property Fund hitting the ground running is the more than 16 years of experience Senger and Pierzak have had in institutional real estate, as well as their many years working together. Both men say their experience and strength as portfolio managers complement each other and will help the fund to expand in the future.

"We have always worked together," Pierzak says. "When Terry joined Henderson he was an acquisition officer and I was working as director of research. Now, working together on Henderson Property Fund, he has the bottoms-up, transaction experience, whereas I probably view things from the top-down, or more macro-perspective."