New World Wealth from The Old World The Ferré Rangel Family of Puerto Rico
By Steffi Baker, Managing Editor – Family Office Real Estate Magazine
Publisher Insight: One of the main reasons I started this magazine was to provide insight into family offices that have created their wealth in real estate, or that are in the process of creating additional wealth in real estate so that other family offices can learn from both their successes and failures. This article discusses one such family that is creating additional wealth through real estate.
People tend to believe that life is linear, naturally progressing from Point A to Point B to Point C. That is certainly true of some families; but for the Ferré Rangel family of Puerto Rico, the rise of their business enterprises and wealth has been a fascinating series of twists, turns, forks and side roads.
Antonio Luis Ferré Rangel is one of the 3rd Generation family members of the Ferré Rangels family office. In discussing how the family ended up starting a new division for real estate he started at the beginning with his great-grandfather emigrating from Spain to Cuba, and then moving on to Puerto Rico around 1898.
“He was a mechanical engineer by that time when he was in Puerto Rico. You had sugar cane, which was the major industry, so basically most of the sugar plantations needed the big machinery equipment to produce the sugar,” Antonio Luis explains. “So, my grandfather started a foundry to produce some of the major pieces of equipment for those to function. He had four sons who worked with him, one of whom was my grandfather, who later became governor of Puerto Rico in 1968.”
By that time, the family had its fingers in many business pies – cement and companies in Puerto Rico, cement in Miami and glass in Venezuela. The family also ran a small newspaper, which Ferré Rangel’s grandfather sold to his father when he was elected governor. Antonio Luis’s father moved the newspaper to San Juan. It was more of a side business, while he ran the cement company, but in the early 1990s, he stepped down from the cement company to focus on the newspaper and that’s when the nature of the family’s wealth began to change.
At that stage, the family office, which is run by members of the fourth generation, decided to invest in other areas and expand from the original sources of wealth. Due to lack of succession planning in his grandfather’s generation, the wealth splintered amongst his four sons. Antonio Luis’s father found himself taking different directions, which eventually included real estate.
“The real estate (venture) was created because we had two operations in Puerto Rico,” Antonio Luis says. “We had the cement plant after the quarry was depleted – then it became an industrial park and industrial real estate play.”
The family decided to invest in rea I estate outside Puerto Rico as they knew that Puerto Rico was entering a recession. The family got together and asked “what are the areas of expertise that we have that we can export?” That’s when they decided to enter the American market and invest in multifamily real estate.”
Initially they took about three years to understand the asset class and the US market by buying in Columbus, Ohio. Once they felt comfortable with those dynamics, hey graduated to being the general partner in their transactions. They started small, buying just one property where they were the sole owner, and from there they picked up other properties in Columbus and Indianapolis.
As with many family offices, relationships are very important, and for Ferré Rangel, this is how they started in Columbus Ohio, of all places.
“Ironically, as always there was a connection. We had a couple of friends that were doing business in Columbus who said Columbus would be a nice place for them to invest,” said Antonio Luis.
After being introduced by their friends to a group of property managers in Columbus, they decided to visit and do their due diligence. Columbus also fell in line with the matrix that they had put together specifying key attributes they desired in a market. These included secondary or tertiary markets with good facilities such as airports, communication terminals, transportation hubs, medical system hospitals nearby, as well as job growth and employment growth.
After gaining additional experience the Ferré Rangel family office moved from purchasing properties worth $5 to $10 million to larger properties between $15 to $20 million consisting of 300 units to 350 units. Their largest property was $35 million, with 600 units.
After their initial success, the family had to start thinking again about Puerto Rico and its economic situation. Puerto Rico had been in a recession for the past twelve years so growth was going to be very difficult to obtain.
For the family, the logical next step was to open an office in the U.S. to manage their current assets and acquire more properties. As part of the expansion Ferré Rangel decided to hire a professional to help support the family’s real estate strategy. Finding outside experts is something that the family has always done because they believe it’s very important to work with managers that have the experience they do not in certain areas of real estate.
The family decided to consolidate their U.S. assets under Boston-based Kingbird Properties. In Puerto Rico, their strategy is similar to the U.S., which includes a management group that looks after the existing Puerto Rico assets. The Boston company also oversees the managers and assets in Puerto Rico and Spain.
Over the next five years, Kingbird Properties is focused on building a portfolio of about 5,000 units with a market value of around $500 million. To accomplish this objective, the plan is to use their own family capital and also invite other families and friends to co-invest alongside them. Antonio Luis wants to ensure they are transparent on their fee terms as he understands this is often a delicate matter between family offices.
The investment strategy for Kingbird Properties focuses on value-add multi-family assets built in the 1970s and 1980s in secondary and tertiary markets such as Columbus and Indianapolis as they know those markets very well, and southern markets such as the Florida panhandle and North and South Carolina. They will reinvest the profits and likely hold the property for one to three cycles. When they do refinance, their objective would be to first return capital to investors, at which point the investors can choose to stay in or exit the deal. They do not plan to create a fund.
The family stays on top of growing their wealth, and everyone is involved. Each month they have a family council meeting, and they confer on how allocate investments. Of the 13 family members that are the next generation, a small group are now in college, so Antonio Luis feels that the family must develop a portfolio that creates opportunity for them to join the business and learn to manage these assets as well as their media and customer and engagement divisions.
For the Ferré Rangel family, real estate will play an integral part of their daily business and ongoing wealth creation, for not only the current generation, but for the future generations as well.