Commercial Real Estate

Why Ari Rastegar Thinks an Economic Downturn Is Looming

Dallas private equity exec Ari Rastegar believes a big economic downturn is looming, and he’s gearing up for just that.

Dallas real estate investor Ari Rastegar has never been one to follow the crowd. He’s certainly not doing so with his company, Rastegar Equity Partners. Long before investors began balking at the “two-and-20” compensation model, Rastegar was offering an alternative.

The traditional structure used by private fund managers is to charge investors a fixed 2 percent management fee (of total asset value) and a 20 percent performance fee (on any profits earned). They also assess acquisition commissions, fees for monitoring investments, and other charges. Rastegar keeps it simple, taking a 1.2 percent management fee—then half of all profits above an 8 percent return. Instead of making money on the front end, he makes it on the back end. Investors accept the lower cut of profits after the hurdle in exchange for lower management costs and no additional fees. “I go out of my way to be open-kimono with investors,” he says. “I grew up in the era of Bernie Madoff, and I’ve seen how investors can get scared. I want them to know, ‘I’m not going to make money off you; I’m going to make money with you.’”

Rastegar has two influential allies in his venture: close friend Nate Paul, CEO of Austin-based World Class Capital Group, and New York investment titan Anthony Orso, CEO of Cantor Commercial Real Estate. Rastegar once worked for Paul and often partners with him on investments. Orso is a mentor (and his daughter’s godfather) who has helped finance some deals.

Since launching his own firm in early 2015, Rastegar has acquired more than $500 million in portfolios and assets. He invests in nearly all commercial real estate product types, including self-storage facilities, an asset class that’s often overlooked. “I’ve never lost money as a real estate investor, and I’ve never lost money for an investor—ever,” he says.

The brash entrepreneur has had big ambitions for as long as he can remember. He lived with his mother as a young child following his parents’ divorce. From age 10 on, he was raised by his father, an Iranian immigrant who attended Texas A&M School of Law in Fort Worth but lived in a small condo in University Park so Ari could attend Highland Park schools. Growing up as a poor kid surrounded by wealth, Rastegar was determined that he would be rich someday. And not only that, but he’d find a way to help others become wealthy, too. l. “I didn’t know the how of what I wanted to do, but I knew the why,” he says.

“Multitasking is a lie. It’s bullshit. It doesn’t work.”

Ari Rastegar, Rastegar Equity Partners

Rastegar graduated cum laude from Texas A&M University. He went on to get a law degree from St. Mary’s University in San Antonio. Along with scholarships and student loans, he funded his education by delivering pizza and selling cars—work that fine-tuned his cold-calling skills. After his first year of law school, in the spring of 2006, Rastegar saw how the real estate market was taking off and gambled his college money on a small development project. When the investment quickly paid off, he did more deals before exiting near the peak of the cycle.

Following law school, he took a job with Dallas attorney John Read. One of Read’s clients was a group of promoters who wanted to sue a nightclub for backing out of a deal to host an NBA All-Star party with LeBron James and Drake in 2010. Instead, Rastegar helped the promoters find a new venue, AM/PM Lounge at The Mosaic, and the event went off without a hitch. Around this time, Rastegar reconnected with one of his high school wrestling coaches, who invited him to dinner with his “Italian cousin,” Orso. The investor was intrigued by Rastegar’s event experience and, not long after, moved him to New York and backed him in a venture called Capital A Entertainment. (“He was the capital, I was the A,” Rastegar says.) The company hosted two of the biggest Super Bowl XLV parties in Dallas, with the Black Eyed Peas and P Diddy, but a brutal ice storm caused transportation delays and negatively impacted profits. Days later, Rastegar dealt with another catastrophe, when Legionnaire’s disease broke out at the Playboy Mansion in California, right before Capital A was to host an NBA All-Star game party there with Snoop Dogg and other celebrities. Rastegar was devastated. “God kicked me in the teeth,” he says. “And I felt like I let Anthony down.”

But Orso was impressed by the way his young protégé had responded to the challenges. “Ari is unbelievably hard-working and cares very much about what he does,” Orso says. “He’s done an amazing job of putting himself in a position to succeed.”

‘Fire In His belly’

Rastegar exited the event business and joined what’s now Chelsea Hotels, where he worked on several acquisitions with hotelier Ed Scheetz. In 2013, he joined World Class Capital Group to open a New York office for the firm and develop its capital markets division. He also played a role in the company’s acquisition of the former KPMG Centre office tower in downtown Dallas, now known as 717 Harwood and in which Rastegar is an investor.

In February 2015, he moved back to Dallas and formed his own company, Rastegar Capital, with the blessing of World Class  Capital’s CEO. “I encouraged him,” Paul says. “He has big goals, but those who know him know those goals are within reach. He has a real fire in his belly, and he’s willing to outwork anyone else.”

An admitted insomniac, Rastegar maintains a frenetic pace, but keeps a laser focus on whatever he’s working on. (“Multitasking is a lie,” he says. “It’s bullshit. It doesn’t work.”) He gets his inspiration from “Think and Grow Rich,” a book he first read at age 15 and has re-read “probably a hundred times” since. He’s also an avid fan of self-help guru Tony Robbins. It was at a Robbins seminar in 2015 that he met Darren Manzari, who now runs “fixed operations” for Rastegar. An efficiency expert whose clients included Porsche and GM, Manzari gave up a thriving consulting business to become a partner in Rastegar’s firm.

Whereas Rastegar brings big-thinking and creativity to the venture, Manzari brings a sense of process-driven order. Under his guidance in 2016, the firm shored up its infrastructure, tapping KMPG to audit its track record and financials, hiring both a COO and a CFO, and bringing on a third-party fund administrator, Dallas-based Strait Capital Co., to oversee compliance. The firm is now raising money for a new fund, this one with a cap of $500 million, and is expanding into additional product lines—originating debt instruments and broadening equity investments into real estate assets. It also plans to open offices in New York City, Miami, and Los Angeles within the next year.

Rastegar focuses on raising capital and finding and evaluating deals. He targets “recession-resilient” assets in the $3 million to $95 million range. Holdings are spread out among 20 different U.S. cities, although Dallas and Texas remain favored markets.

Because his revenue structure focuses on performance versus fees, Rastegar is picky about the acquisitions he makes. He focuses almost exclusively on assets that provide current cash flows, and describes himself as a pessimist who considers every “doom-and-gloom” possibility.

In November, the company transitioned from Rastegar Capital to Rastegar Equity Partners, to reflect its shift toward a model that serves public pension funds and registered investment advisors, along with high-net-worth individuals. The District Attorneys’ Retirement System of Louisiana has invested in two different Rastegar funds, and other pension funds have expressed interest.

Rastegar believes a big economic downturn is looming—one that will create “a generational investment opportunity,” he says. “We are trying to ramp up capital to have dry powder to capitalize on ‘correction’ deals. If done right, kings will be made and billionaires will be created, and that’s the side of history we’re going to stand on.” 

Comments

  • Al Spencer

    Great Article!