The Real Deal New York

Here’s why SkyBridge Capital pulled plug on Opportunity Zone venture with EJF Capital

Anthony Scaramucci's SkyBridge encountered unexpected resistance after promoting the $3B fund
By Eddie Small | January 17, 2019 11:30AM

From left: EJF’s Manny Friedman and SkyBridge’s Brett Messing and Anthony Scaramucci (Credit: HFM Global, SkyBridge Capital, and Getty Images)

SkyBridge Capital and EJF Capital touted their planned $3 billion Opportunity Zone fund as a unique entity, saying it would be structured as a real estate investment trust in order to develop across states and property types.

But a month after a big rollout, Anthony Scaramucci’s SkyBridge pulled the plug on the partnership amid concerns from distribution partners about EJF’s lack of experience managing real estate funds.

“This endeavor was going to be their first dedicated real estate fund,” said Brett Messing, SkyBridge president, referring to EJF.

SkyBridge’s distribution partners wanted “to see a track record or a return stream from a fund that was a dedicated real estate fund,” Messing said.

The partners knew going into the fund that this might be an issue, but they still experienced more pushback than they thought, he said. “We thought we could overcome it, and the resistance that we received was greater than we collectively anticipated,” he said, “so parting ways made sense.”

The Opportunity Zones program, which has been gaining momentum in recent months, offers tax deferrals and benefits to investors who park their money in assets located within designated low-income neighborhoods. There are more than 8,700 designated zones nationwide. The program has stirred interest among developers and investors, though final regulations have yet to be released.

Concerns about EJF’s experience appeared to indirectly surface on a conference call last month that Scaramucci — a SkyBridge partner — and EJF’s Manny Friedman had in December, to solicit investors for their fund. During that call, Scaramucci could be heard asking: “Who the hell is EJF and their expertise as it relates to real estate?” But he also called Friedman “one of the exemplary investors of his generation” in an apparent attempt to reassure investors that the company was qualified to be a sub-adviser on the fund.

Friedman focused on the business itself during the call, saying they had “first mover advantage.”

In September, EJF rolled out its own $500 million Opportunity Zone fund. It aimed to make the fund available to wealth management platforms, allowing it to raise more money and increase its investor pool. In October, EJF hired hedge fund and private equity manager Asheel Shah as its senior managing director and head of real estate. EJF did not respond to multiple requests for comment.

Messing described the split as disappointing but amicable. EJF will now focus on its own Opportunity Zone fund, and SkyBridge will continue to move forward with its fund. SkyBridge still intends to raise $3 billion and will move forward with a different sub-adviser that the hedge fund hopes to announce in the coming days.

“They have their own fund, so they’re going to market their fund,” Messing said of EJF. “We are going to carry on. We have identified a manager that has a long and impressive track record.”

Other real estate companies are also setting up Opportunity Zone funds, including Youngwoo & Associates and RXR Realty, which are both looking to raise up to $500 million.