Meet The Man Who Went From Studio 54, To Hiding Money Under His Bed In Post-Soviet Russia, To Running A UK Property Lender
Tallinn, Estonia, 1993. You’re an American visiting the country to explore your family history and maybe start a new life, and by accident you’ve become a financier for local investors, helping them raise credit and write business plans. You find yourself with $100K in cash in a country recently liberated from the Soviets, with a nascent, 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 in a roundabout way leads you to becoming a UK property lender backed by two of the biggest names in private equity, with £300M to lend to credit-starved developers.
The career of Hilltop Credit Partners Chairman Paul Oberschneider has been a bit more eventful than most. There is knowing how to time the cycle and come back from adversity. Then there is Oberschneider’s journey from a small town in the Midwest, via early 1980s New York trading floors and Studio 54, eastern Europe and now a push to become one of the new breed of lenders stepping into the gap vacated by traditional UK lending banks.
“I’m from the cornfields of Illinois, my father was a small-town doctor who had emigrated from eastern Europe, and I had a very interesting, Huckleberry Finn type of childhood,” Oberschneider told Bisnow.
While at Loyola University in Chicago in 1979, Oberschneider began working as a runner at the Chicago Board of Trade, a futures and options exchange, ferrying paper trade orders between brokers and dealers, and there he was spotted to work as a futures trader in New York. He moved there at 19 before he graduated.
“I was 19 years old and I was completely out of my mind, and I had no idea about the value of a dollar,” he said. “I found myself far away from home in NYC in the early 1980s and the rest, as they say, is history. I would be in Studio 54, stumble home at 5am, put on a new shirt and go back to work.”
While Oberschneider learned a lot working for famous names in the financial world like Steve Fossett, the life he was living was unsustainable, and while his friends were getting married, having children and buying nice houses, in the mid-1980s he left the financial world, kicked the partying and worked as a manual labourer as he finished his degree.
“When I finished school, I thought, what’s next? I had enrolled in an MBA programme. My father was from Estonia, he had died when I was younger, and I knew little about his background. The Berlin Wall had fallen a few years earlier, and I decided I had a few months to explore my family roots. I put everything in storage and flew to a foreign city [Tallinn], where I didn’t know a soul, with $400.”
This was 1993, and Estonia was one of the many former Soviet republics that was trying to set up a capitalist liberal western democracy from a standing start, and it was a heady time.
“Everything was changing fast,” Oberschneider said. “The older generation was exiting and all these young kids were starting banks and investment companies. It was pretty crazy.”
Oberschneider was asked by a friend of a friend to write a business plan and help him raise finance for a new venture. He had studied a bit of real estate and emerging markets finance at university, so he helped out. He was paid $500. Then more people asked him for help, so he doubled his prices. Within a few months he had $100K in cash, moved out of a friend’s apartment, and in his new place resorted to storing the cash under the bed.
“People thought that because I was American I just knew how to write a business plan,” he said. “I built a business by reading a PwC credit handbook. I was totally self-educated, I would be reading corporate finance books at night. Everybody was making it up as they went along.”
Some of the people he was advising were real estate developers, and the full pivot into real estate came after he built himself an apartment to live in next to the U.S. embassy. A broker told him how much he could rent it out for to embassy staff, so he rented it out instead, and started buying apartments to rent them out to the stream of Americans and Europeans setting up businesses in Tallinn and flipping them as values continued to rise.
From those small beginnings rose a brokerage, investor and developer, working under the Ober-Haus and Hauser-Oberschneider names, with 33 offices across Poland, Lithuania, Ukraine, Latvia and Estonia. It has become one of the largest real estate companies in central and eastern Europe.
Its unique selling proposition was building and creating western-style residential apartment blocks, retail hypermarkets and hotels in countries that had no real supply of these properties.
Grocery-anchored retail schemes were the real moneymakers, Oberschneider said. Particularly in former communist countries, people had previously shopped in small grocery stores linked to their apartment blocks or in city centre supermarkets that were difficult to reach by car. People didn’t believe out-of-town hypermarkets would work, but Oberschneider felt differently.
“People thought no one would be able to 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 backed in these developments by investors like Apollo and Immo East, building at yield on costs of 16% to 17% and selling the portfolio in 2006 for a yield of 5%. He eventually sold all his holdings to a Finnish pension fund in 2007.
He took some time out for a few years and invested in a UK healthy fast-food retailer that was bought by private equity in 2016, as well as a UK hotel and a farming business in Argentina.
But those were more personal passion projects, and in 2017 he established Hilltop, with a view to taking advantage of an opportunity which, while not quite as racy as building in the days after the fall of communism in eastern Europe, is a gap in the market nonetheless: residential development.
Hilltop is backed by London-based private equity firm Round Hill Capital, and in March this year it announced that Metropolitan Real Estate, a division of BentallGreenOak, had provided financing that would allow it to lend £300M into UK residential development outside London, which had the potential to fund 1,000 new homes.
“We are investing with an experienced team in an already seeded, and growing, portfolio of affordable residential loans that provides visibility and proof of concept in attractive locations with quality local sponsors,” Metropolitan Managing Director and Head of Europe Cherine Aboulzelof said at the time.
The company has so far provided debt to facilitate the construction of 250 UK homes. It provides funding for up to 90% loan-to-cost, with loans ranging from £5M to £50M.
“There are a lot less people in this business than there were a few years ago,” Oberschneider said.
He said tighter bank capital regulations since the Global Financial Crisis made it harder for banks to finance residential development.
“Peer-to-peer lenders have grown in the last three to four years to fill that space, but they are also being hit hard by new regulations. For us it's a business with a good risk and return profile.”
Oberschneider said that the company is more confident about the prospect for schemes outside of London compared to the capital, because land prices are lower but the market should still see growth.
“We’re all equity people, and one thing we bring to the table is knowledge of development risk and cycles, and some of the pitfalls that can happen with a project,” he said. “We are a lender, but we are really a partner that just happens to be a lender.”
And the profits from this business don’t need to be hidden under the bed.