Meet the man who moved from Studio 54 to hiding money under his bed in post-Soviet Russia to run a UK real estate lender
Tallinn, Estonia, 1993. You are an American visiting the country to explore family history and perhaps start a new life, and you just happened to become a financier for local investors who help them get loans and make business plans . You are with $ 100,000 in cash in a country recently liberated from the Soviets, with an emerging fragile banking system. What do you do with the money?
You put it under the bed. Then you start an Eastern European real estate empire that takes you a detour to a UK real estate lender, backed by two of the biggest names in private equity, with £ 300m in loans to loan-hungry developers.
Courtesy of Paul Oberschneider
Hilltop Capital’s Paul Oberschneider
Hilltop Credit Partners Chairman Paul Oberschneider’s career has been a little more eventful than most. There is knowing how to time the cycle and come back from adversity. Then there’s Oberschneider’s journey from a small Midwestern town to the New York trading floors of the early 1980s and Studio 54, Eastern Europe and now a push to become one of the new breed of lenders to fill in the void that the traditional ones British credit banks have vacated.
“I come from the Illinois cornfields, my father was a small-town doctor who immigrated from Eastern Europe, and I had a very interesting Huckleberry-Finn-style childhood,” Oberschneider told Bisnow.
While at Loyola University in Chicago in 1979, Oberschneider began as a runner on the Chicago Board of Trade, a futures and options exchange that passed paper trade orders between brokers and traders, and was discovered there as a futures trader in New York. He moved there at 19 before graduating.
“I was 19 years old and I was completely insane and I had no idea what a dollar was worth,” he said. “In the early 1980s I found myself far from home in NYC and the rest, as they say, is history. I was in Studio 54, stumbled home at 5am, put on a new shirt and went back to work. “
While Oberschneider learned a lot from big names in the financial world like Steve Fossett, his life was unsustainable, and while his friends got married, had children and bought beautiful homes, he left the financial world in the mid-1980s, drove the party and worked as a after graduation Henchman.
Courtesy of Paul Oberschneider
Oberschneider in the early 1990s
“When I finished school, I thought, what’s next? I was enrolled in an MBA program. My father was from Estonia, he died when I was younger and I knew little about his background. The Berlin Wall had fallen a few years earlier and I decided to have a few months to explore my family roots. I stored everything and flew to a strange city [Tallinn], where I didn’t know a soul, with 400 dollars. “
That was 1993, and Estonia was one of the many former Soviet republics trying on the fly to build a capitalist liberal Western democracy, and it was an exhilarating time.
“Everything changed quickly,” said Oberschneider. “The older generation dropped out, and all of these young children started banks and investment companies. It was pretty crazy. “
Oberschneider was asked by a friend of a friend to write a business plan and help them fund a new business. He’d done a bit of real estate and emerging markets finance in college, so he helped out. He got $ 500. Then more people asked him for help, so he doubled his prices. Within a few months, he had $ 100,000 in cash, moved out of a friend’s apartment, and resorted to keeping the money under the bed in his new job.
“People thought that because I’m American, I just knew how to write a business plan,” he said. “I built a business by reading a PwC credit handbook. I was self-taught, reading corporate finance books at night. Everyone has come up with it over time. “
Some of the people he advised were real estate developers, and his full entry into the real estate business came after building himself an apartment next to the US embassy. A realtor told him how much he could rent it out to embassy staff, so he rented it out instead and started buying apartments to rent to the stream of Americans and Europeans setting up businesses in Tallinn and reversing them while the values further rise rise.
From these small beginnings a broker, investor and developer emerged under the names Ober-Haus and Hauser-Oberschneider with 33 offices in Poland, Lithuania, Ukraine, Latvia and Estonia. It has developed into one of the largest real estate companies in Central and Eastern Europe.
Its unique selling proposition was the construction and creation of western style apartment blocks, retail hypermarkets and hotels in countries that had no real supply of these properties.
Tallinn, the capital of Estonia
Food-anchored retail systems are the real money-makers, said Oberschneider. In the former communist countries in particular, people used to shop in small grocery stores attached to their apartment blocks or in inner-city supermarkets that were difficult to reach by car. People didn’t think hypermarkets would work outside of town, but Oberschneider saw it differently.
“People thought nobody could afford to go there, but if you looked in the parking garage of these apartment blocks, they were full of BMWs and Mercedes,” he said.
He was supported in these developments by investors such as Apollo and Immo East, built to a return on costs of 16% to 17% and sold the portfolio in 2006 for a return of 5%. In 2007 he finally sold all of his holdings to a Finnish pension fund.
He took a few years off and invested in a UK healthy fast food retailer that was bought by private equity in 2016, as well as a UK hotel and farm in Argentina.
But those were more personal passion projects, and in 2017 he founded Hilltop to take advantage of an opportunity that may not be quite as rapid as building in the days after the fall of communism in Eastern Europe, but still a gap in the market: residential development.
Backed by London-based private equity firm Round Hill Capital, Hilltop announced in March this year that Metropolitan Real Estate, a division of BentallGreenOak, has provided funding that would give it $ 300 million in potential To finance 1,000 new homes.
“We are investing with an experienced team in an already seeded and growing portfolio of affordable home loans that offers visibility and proof of concept in attractive locations with quality local sponsors,” said Cherine Aboulzelof, Metropolitan Managing Director and Head of Europe.
The legendary Studio 54 nightclub
The company has so far gone into debt to facilitate the construction of 250 UK homes. It provides funding for up to 90% of the loan at cost, with loans ranging from £ 5 million to £ 50 million.
“There are far fewer people in this business than there were a few years ago,” says Oberschneider.
He said that since the global financial crisis, banks’ stricter capital adequacy requirements have made it more difficult for banks to finance residential real estate.
“Peer-to-peer lenders have grown to fill this space in the past three to four years, but they are also being hit hard by new regulations. For us it is a business with a good risk and return profile. “
Oberschneider said the company is more confident about the outlook for projects outside of London compared to the capital as land prices are lower but the market should continue to grow.
“We’re all equity people, and one thing we bring with us is knowledge of development risks and cycles, and some of the pitfalls that can happen with a project,” he said. “We’re a lender, but we really are a partner who happens to be a lender.”
And the profits from this business don’t have to be hidden under the bed.