Oak Street Real Estate Capital to be acquired by Blue Owl Capital

The deal completes a lucrative cashout for Oak Street, whose three dozen employees are primarily based in the Loop and managed $10.8 billion worth of assets as of the end of June, according to Blue Owl. Founded by north suburban natives Marc Zahr and Jim Hennessey, the firm has purchased big collections of properties from creditworthy companies such as First Midwest Bank, Sherwin-Williams, Motorola and Big Lots and signed long-term leases to rent them back, returning relatively strong and consistent yields to their investors. Major municipal pension plans and other institutional investors have hired them to invest their funds, many earning 8% returns on their investments monthly, according to Oak Street.

Now Zahr and Hennessey have sold the firm to an entity formed earlier this year by a merger involving a publicly traded, so-called blank-check company and two other companies that specialize in providing loans for private equity investors. Shares of Blue Owl began trading at just more than $10 apiece on the New York Stock Exchange when the merger was completed in May, and its stock price opened today at nearly $16 per share.

“There is a strong fit between Blue Owl and Oak Street, highlighted by our mutual drive to be market leaders in what we do, our shared deep appreciation for the value of long-duration capital, and our focus on downside protection and robust income generation for our investors,” Zahr said in the statement. He will join Blue Owl’s board of directors and executive committee, and “key members of the Oak Street leadership team will remain in place” to lead the business, the statement said. “My team and I look forward to partnering with the Blue Owl team to bring Oak Street’s differentiated product offerings to a new base of investors and to collaborate to bring additional investment opportunities to investors in Oak Street’s funds down the line.”

Oak Street’s investments come with a fair amount of risk, as it is betting on the credit of companies to be able to pay rent over a long period of time, with leases often running 15 to 20 years. Such net-lease agreements have become more popular in recent years among companies looking to free up cash to invest in their business or elsewhere. Many businesses turned to that option early in the COVID-19 pandemic to shore up their cash reserves when the economy came to a standstill.

Blue Owl said in the statement that the Oak Street acquisition adds to its financing options for clients.

Zahr and Hennessey, who were named to Crain’s 40 under 40 list in 2018, were high school classmates at Loyola Academy and launched Oak Street out of a small Oak Avenue office in Evanston in the throes of the Great Recession. The duo initially landed a $110 million investment from the Municipal Employee Retirement System of Michigan and would later add investments from the Illinois Municipal Retirement Fund and the Chicago Teachers’ Pension Fund.