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Paul Marcus, Chief Executive Officer and Founder, Marcus Partners

Institutional Investor • 13 November 2023

Alpha Edge Recognition: LP-GP Partnerships

This year, Allocator Intel is recognizing leaders in the allocator community, acknowledged by their peers, for exceptional leadership in the key areas of portfolio construction in the Alpha Edge Recognition Awards.
Nominated for LP-GP Partnerships, Paul Marcus is the Chief Executive Officer and Founder of Marcus Partners, a vertically integrated real estate private equity firm with a strong history of successful investment, management, and development. The firm is headquartered in Boston, with regional offices in Metro New York City and the Mid-Atlantic. With $1.9 billion in assets under management, it focuses on value-add investment strategies across industrial, multifamily, life science, and other property types where it can create value and maximize risk-adjusted returns. Marcus Partners and its affiliates owns, controls, operates or is developing more than 8 million square feet of real estate and 1,900+ multifamily units. 
Paul received his Bachelor of Science at the Massachusetts Institute of Technology (MIT) and has been involved with the institution for 17 years in a variety of different roles. He has served on the Board of Trustees (MIT Corporation) for 10 years. He has also served on the MIT Investment Management Company Board, which manages the school’s endowment, for seven years and recently became Board Chair.
The following is edited for length and clarity.

Let’s start with you sharing an overview of your role. What have been some of the changes?

I am privileged to lead our firm alongside our senior leadership team. The two meaningful changes over the past five years are the evolution of our investment themes and our succession planning. In 2017/2018, we began pivoting away from the office sector due to escalating disruption exposure from a variety of factors but notably artificial intelligence. In Fund II, a 2014 Fund, we invested over 50% of the vehicle into office. In Fund III and Fund IV, there is zero office. Today, our portfolio is nearly 70% industrial, 20% multifamily and approximately 10% life science. Our increased activity across these sectors has contributed positively to returns.
On the succession front, we recently transitioned the firm into a partnership. This is a milestone in a multi-year planning effort to provide the firm with business continuity for decades to come. There are five Partners, averaging 40 years old, that now own the operating business with me. 


Is the advent of AI something you see becoming a viable trend?

Our investment strategy marries a top‐down and bottom‐up approach. In 2018, we issued the First Edition of our “Trends | Top Down Strategy” thought piece, which is a macro perspective on some of the world’s major trends, their impact on real estate, and the resultant opportunities and risks they present. One of the primary trends in our 2018 thought piece was artificial intelligence and we continue to believe it’s one of the world’s most important trends, along with decarbonization and geopolitical realignment. We are amid a major economic transformation that is accelerating as a result of a variety of factors, including the rapidly advancing disruptive convergence of technology (artificial intelligence certainly being central to this) and its impact on the global landscape.
In our view, success will increasingly be predicated on flexibility and the ability to view real estate investment opportunities through this prism of disruption. 

In terms of your strategic partnerships, what are some of the things you focus on?

We held the final close for Fund IV in July 2022 with commitments totaling $650 million. Our original hard cap was $550 million. We feel very privileged to be investing on behalf of a select group of highly regarded institutional investors and family offices. Our long-term relationship with these institutions and families is something that our firm values considerably.
With regard to our business partnerships more broadly, we are highly selective and many of these relationships span decades. Simple core values have guided our firm for 25 years – namely, always to be ethical, responsible, and transparent, and to put the investor first. We approach all aspects of our business with these values as our North Star, and partner with groups that have the same standards that we set for ourselves.

What are some of the investment opportunities that you’re focused on in the next 12 to 18 months?

Three areas are of particular focus, and they all tie back to our top‐down and bottom‐up approach.
One: Decarbonatization is a major trend that will create a lot of opportunities (and a lot of value destruction in certain areas). Power capacity and access to the electrical grid will become very important “currencies” as the energy transition progresses forward. We are leveraging the decarbonization trend to augment returns within the industrial sector. For instance, using excess land for battery storage and deployment of proper power at truck depots to serve electric fleets. 
Two: onshoring of manufacturing. We believe the re-industrialization of the United States is in its early stages and it’s not just about semiconductors. 
Three: The speed at which disruption is occurring is unprecedented, and it will continue to create an economic climate of increasing divergence between outperformers and underperformers. For instance, over the short to medium-term, we believe that artificial intelligence will be a continued tailwind for industrial real estate, as you think about e-commerce and the marriage of search and commerce. Conversely, we think artificial intelligence will be a headwind for medical office over the medium to long-term. To that end, the collective impact of macro trends is redefining how real estate is designed, used, operated, and valued – creating an increased volume of stranded assets. We believe that the opportunities that lie within these stranded assets can be unlocked by a vertically integrated team that understands real estate from the bottom up. Furthermore, a major portion of existing physical real estate will find itself in conflict with end‐user demand and will require repositioning and/or redevelopment, including change of use.

What are some of the challenges that you anticipate over the next few years?

I think the challenges are also opportunities. One would be that we are believers in “higher for longer” with regards to interest rates. For investors who have not been in the business for a while, they haven’t felt this before. There are a lot of mentorship opportunities around this for team members who haven’t been through four economic cycles. 
Number two is that there are times to go fast, and there are times to go slow – we think today’s environment calls for the latter. Common sentiment appears to be shifting to an expectation that better days are on the near-term horizon. Our approach reflects a different thesis – we remain highly measured and continue to reinforce the mission that we have always set out to do, which is – above all – to protect investors’ capital. This requires keeping a particular focus on team engagement because we are looking at 10 times more deals but doing 10 times less.
Finally, we are going through a period in which the “rate of change of change” is increasing on an exponential curve. The human mind thinks in a straight line – it’s difficult for most to fathom what exponential means.

What would you say is your office’s greatest accomplishment since you joined?

I would say the succession planning that I talked to you about. This took a lot of work to get right and continues to be a focus. Transforming a firm that is owned by an individual to a true partnership that has multi-generational endurance is very rewarding. Today, we have five Partners who share the same values and are deeply committed to the success of the firm and being stewards of capital. 

What do you do in your spare time?

I spend a lot of my spare time giving back to MIT and am involved in the world of national security. In addition to my roles with the MIT Corporation and MIT Investment Management Company, I serve on numerous visiting committees at MIT including Economics, Political Science, Social Sciences, and Brain and Cognitive Sciences.
Being on the Board of BENS (Business Executives for National Security) is something that I also very much enjoy and find particularly important today given the world’s unsettled geopolitical situation.

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