Urban Investing by Bobby Turner of Canyon Capital

Bobby Turner was another guest speaker in my class on Leadership and Ethics, taught by former Mayor Richard Riordan. Bobby is Chairman of Canyon Capital Realty Advisors, which manages $21 billion and invests in many types of real estate opportunities. The focus of the class was on Bobby's initiatives to invest in urban neighborhoods in order to improve them and give back.

Bobby led Canyon's initiatives to partner with Magic Johnson and Andre Agassi in developing urban neighborhoods and charter schools. Bobby was trained by Mike Milken at Drexel and graduated from Wharton School of Business.

Bobby explained that there are four ways to create wealth:

• Inheriting
  
• Marrying
  
• Speculating
  
• Value investing

At Drexel, he learned value investing, a strategy often overlooked, and mis-assessed. The keys to doing it right are quantifying and mitigating risk.

Bobby said that your first million dollars is the hardest to make, and wealth doesn't make happiness.

He said there are four types of happiness:

• Materialism
  
• Love
  
• Accomplishment 
  
• Power (to change the world, have positive impact on people's lives)
  

It is the last type of happiness that he pursued in partnering with Johnson to raise an urban investing real estate fund. They succeeded in doing this: they raised $275 million in 2.5 years, invested it all, and made an 18% return. Bobby explained that there is a huge demand for housing and retail space in dense urban communities, so not only were their investments sound financially, but they also generated jobs and improved the neighborhoods. They raised a second fund of $600 million in one year to continue their work, and later on they raised a third fund of $1 billion in one week. Overall, their initiatives created 10,000 jobs.

The investment criteria they used were the 6 D's:

• Density of population: 300,000 per 3 miles
  
• Diversity
  
• Demand (for housing, retail)
  
• Developer: real estate is a relationship business, so it matters who you know and work with
  
• (De)Leadership: getting the Mayor's support is critical
  
• Do good
  

After the urban investing work, Bobby partnered with Agassi to fight for charter education. They're raising $250 million to build 50 more charter schools. He thinks he must raise private, for-profit capital in order to be successful, as the only sustainable schools will be those that make money.

Bobby considers a fair return on capital to be 10% unlevered (levered up to 18%); after incentives, they return 12% net to investors.

It was neat to hear a person so successful in real estate and for-profit investing find ways to make money while investing in projects that served a drastic need in the community even though they were unpopular. It was also fun to hear the stories of how he convinced Johnson and Agassi to get on board.