Conn. Firm Launches Third Investment Fund   March 23, 2004 Commercial Real Estate Direct Staff Report RiverOak Investment Corp., which was formed four years ago to opportunistically invest in commercial real estate, is launching its third investment fund. The Stamford, Conn., company is not your typical investment manager. Instead of raising a blind pool of capital from institutions, it relies solely on high net-worth individuals and families. Few other managers take similar strategies largely because of the complexities involved in lining up sufficient investors and selling them on the idea of investing in a blind pool. Most high net-worth individuals and families generally invest in real estate via syndicates or partnerships that identify prospective investments ahead of time. RiverOak was formed nearly four years ago by Stephen DeNardo, who was previously head of asset management at ING Realty Partners, and George Yerrall. They raised $5 million for their first fund from 19 investors. So far, some 81 percent of the initial capital has been returned to investors and the fund still has an interest in five properties. RiverOak is projecting a 19 percent rate of return. The company's second fund raised $10 million from 57 investors. Because it has nearly fully invested the fund's capital, the company has started to solicit investors for RiverOak Realty Fund III, with a target of $15 million. It aims to provide investors with a return of at least 15 percent. RiverOak is an unusual commingled fund in that it is typically one of a number of investors providing equity for a property ­ its principals call its investments "gap equity." For instance, it made a $1 million investment in Pickwick Plaza, a 238,000-square-foot office building in tony Greenwich, Conn., that was purchased for $115 million. As a result, the company's second fund has invested in roughly $150 million of transactions. The company is opportunistic in the types of investments it makes. If, for instance, it sees potentially high-yielding opportunities in the apartment sector, it will pursue it. But its 15 percent return target is more inline with value-added investment vehicles. Unlike other fund operators, RiverOak doesn't charge its investors upfront fees. That allows the company to invest nearly 100 percent of the capital it raises. Instead of relying on fees for revenue, RiverOak relies on a back-ended promote, or a promotional return. The fee structure "has worked out well," DeNardo said. "Investors appreciate it." RiverOak is in for "the long haul," DeNardo said. "We'll get our payday" when funds are liquidated. Part of the company's strategy is to keep costs as low as possible. One way of doing that is to focus its investments in the Boston to Washington corridor, where RiverOak's principals can drive to conduct due diligence. "We're getting money invested at the wholesale level," DeNardo said. "We'll only make money through the back-end if our investments do well."   Comments? Call Orest Mandzy at (215) 504-2860, Ext. 211.

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