In Rainwater They Trust

The day after wrapping up a successful initial public offering for his real estate investment trust, Richard Rainwater is decidedly laid back. Clad in white polo shirt, blue jeans, and tennis shoes, an unshaven Rainwater strolls into his Fort Worth office half an hour late for an interview. The dealmaker explains that he had taken his parents fishing. "The weather's been so crummy here that whenever there are two days of sunshine in a row, you have to take advantage of it," he says.

If anyone knows the importance of seizing the moment, it's Rainwater, the former chief investment adviser to Fort Worth's oil-rich Bass brothers. Rainwater's knack for knowing when to buy and sell big stakes in such companies as Walt Disney Co. and Texaco Inc. helped the Bass empire grow from $50 million in 1972 to more than $5 billion by 1986, when he struck out on his own. While Rainwater's track record still is awe-inspiring--he is worth nearly $800 million and has no personal debt--he now is venturing into particularly risky territory. "I view real estate as the most intriguing opportunity that I've seen in my business lifetime," he says.

The question is whether Rainwater's golden touch will extend to an area where even experts often founder. Through Crescent Real Estate Equities Inc., his new REIT, Rainwater raised $350 million in an IPO two weeks ago. Crescent, which went public at $25 a share and now trades at $261 8, didn't have to slash its asking price to get the deal done in a dicey market. Rainwater wants to take Crescent--which has five office buildings, one retail complex, and interests in three single-family residential land developments--from its current $600 million market value to at least $5 billion in the next decade.

To get there, he will buy distressed properties, primarily in the Southwest. "Essentially, [Crescent] is a blind pool, and Rainwater is saying, 'Trust me, I'm Richard Rainwater. I'm going to do great things with your money,'" says Fred Carr of Penobscot Group Inc., a Boston real estate research firm. In contrast, most REITs go public with their portfolios already full.

PLENTY OF GEMS. The Rainwater approach to investing is straightforward: Identify a business that's out of favor, apply shrewd financing techniques, hire talented managers to run it, and wait for the market rebound. But real estate, while hardly booming, is not flat on its back, either, so Rainwater won't be buying at bottom-of-the-market prices.

Rainwater admits he's a few years late but argues there still are plenty of gems out there. He says between $500 billion and $700 billion in mortgages on high-quality properties will be coming due over the next five to ten years, and mortgagees will be eager to unload them. Rainwater figures he will exhaust an initial $300 million credit line within a year and return to the equity market for additional financing. The IPO didn't leave Crescent with a lot of cash. Most of the money was used to repay debt on the properties that Rainwater placed in the REIT in exchange for shares. He owns 5.4 million shares, including 1.4 million he himself purchased in the offering.

Real estate pros salute Crescent's existing portfolio, whose trophy property is the office-retail complex next to Dallas' Crescent Court Hotel. But Rainwater's real estate acumen remains untested. He has experience but usually not as the lead investor. Says one big REIT investor: "We didn't buy it for what's in the portfolio. We bought it because it's Richard Rainwater."

In the past, that has proven to be enough. Since leaving the Basses, Rainwater has racked up returns in excess of 70% a year. "He wasn't an entertainment specialist when he invested in Walt Disney and made a killing, and he wasn't a health-care specialist when he did an outstanding job with Columbia [Hospital Corp.]," says Samuel S. Moore, vice-president of Goldman, Sachs & Co.'s equity division. While surrounding himself with experts in his chosen investment areas, Rainwater's value is in his ability "to look several years into the future and see trends that others don't see," says Moore.

Rainwater, 49, has done just that for more than two decades. The Stanford MBA spent two years at Goldman before leaving in 1970 to work for the Basses. By the mid-1980s, Rainwater had sealed his reputation as a financial mastermind. Not every deal he made for himself was a home run, or even a single. But the flops have been small, mostly in the $1 million to $3 million range.

One of Rainwater's recent ventures, a foray into gaming, isn't looking like a smart bet lately. Last year, Rainwater's Kirkland-Fort Worth Investment Partners invested $5 million in United Gaming LP Inc., a provider of slot machines. United Gaming, at 61 2, is down 45% from its 52-week high. Rainwater never paid top dollar: He bought restricted stock and warrants for about $3 a share. And he won't become a major player. That's because he owns 10% of the Texas Rangers. Major League Baseball bars owners from active involvement in gaming.

Rainwater is also hot on the potential for economic development in China. He recently put $10 million into a partnership called Richina, which just purchased two publications in China. But although the Asian prospects are alluring, Rainwater's major focus these days is scoring with Crescent. And for good reason: His reputation and a huge chunk of change are on the line.

TABLE: THE RAINWATER PORTFOLIO
      Holding                      Estimated value
                                       Millions
      Columbia/HCA Healthcare            $320
      Crescent Real Estate Equities       140
      Other real estate                    30
      Energy Services                      62
      Other energy investments             10
      H.B. Korenvaes Investments           55
      Mid Ocean Reinsurance                23
      United Gaming                         6
      Other investments, bonds & cash     150
      Total                              $796
      DATA: Business Week