STARK CONTRAST
Hedge fund company finds bargain on lakefront, a testament to Milwaukee’s changing economy
By KATHLEEN GALLAGHER [email protected], Journal Sentinel
Sunday, July 20, 2003
St. Francis — Call it the changing face of Milwaukee. Call it what a flamboyant CEO leaves behind. Or maybe just call it a great deal.
Whatever you call it, it’s a unique, luxurious office building.
Consider some of the amenities that came with Stark Investments LP’s swank lakeside headquarters:
A pink neon sign above the cafeteria that says “Cafe EVA.” A glass bird worth nearly $100,000 that changes color depending upon the angle of the viewer and the level of light filtering in the atrium’s kiln-formed glass walls. A plush white sectional whose curves formerly adorned the chairman’s office. A gym. A training room. Underground parking. Sweeping views of Lake Michigan.
“It’s a stressful business, and I think it’s a calming influence having the lake there,” said Brian J. Stark, managing partner and Stark Investments co-founder.
More excesses at a hedge fund company that makes money without manufacturing anything?
Not exactly. Stark bought the building for less than half its original price after the bankruptcy of its original builder: Harnischfeger Inc.
It fit like a glove.
“We’d had an architect do a space plan as if we were going to build a building, and it mapped pretty well with this building,” said Linda Gorens-Levey, Stark’s chief operating officer. Building from scratch, though, “wasn’t economically in the best interests of the firm,” she said.
Not only does the new headquarters provide an “aura of legitimacy” that pleases clients and helps attract recruits, it’s near the airport — a big bonus at a company that has most of its clients outside the state in other parts of the United States and the world, said Michael A. Roth, managing partner and Stark co- founder.
Harnischfeger, a global powerhouse in the mining equipment business for more than 100 years, filed for Chapter 11 bankruptcy in 1999. It emerged as Joy Global Inc., a much leaner company that leases less lavish office space in downtown Milwaukee and is focused only on making mining equipment.
Stark was founded by Stark and Roth, two Harvard-trained lawyers who moved home to Wisconsin in 1993 from Stamford, Conn. The firm in September 2002 moved to Harnischfeger’s 63,000-square-foot former headquarters from offices in Mequon that had only about one-third the space.
Stark needed more room for the 127 employees and sophisticated computer and backup power equipment needed for a 24-hour trading desk that makes rapid-fire trades in developed markets around the world.
The multi-strategy hedge fund management company has about $2.4 billion of assets under management, Gorens-Levey said. Only about 90 of the 4,500 hedge funds in Tremont Capital Management Inc.’s TASS research database have more than $1 billion in assets, said Stephen Jupp, director of quantitative research at Tremont in Rye, New York. So Stark is in about the top 2% of all hedge fund managers, in terms of asset size.
Stark’s move into Harnischfeger’s former digs — whether you call it a great arbitrage, an opportunity created by a distressed sale, or just a darn good deal — may well symbolize the changing face of Milwaukee’s business landscape.
“It’s a good analogy for what’s happening to our economy,” said Peter S. Lautmann, who followed Harnischfeger’s stock closely for many years and co-founded a Milwaukee money management firm, Kitzinger Lautmann Capital Management Inc.
Many of the giants of Milwaukee’s industrial history — Allis Chalmers, Harnischfeger and Rexnord — are names of the past. They’ve been replaced by more service-oriented companies such as Fiserv Inc., Kohl’s Corp., Manpower Inc. — and Stark.
Stark closed on the Harnischfeger headquarters building for $5.8 million in April 2002 — four years after the mining equipment maker put it on the selling block for $14 million.
The company uses the cafeteria named for Economic Value Added, or EVA — a system that measures a company’s returns on the capital it invests — to provide free lunch to employees. The Stephen Knapp- designed glass bird that some saw as flying in the face of Harnischfeger’s EVA attempts still hangs in the atrium. Stark even kept the white sectional, although it now resides in an employee lounge.
The company replaced the white carpeting in former Harnischfeger chairman Jeffrey T. Grade’s office, though, with a more conservative taupe and gray floor cover. The low-key approach of Stark and Roth, who share the office, is a stark contrast to the space’s previous occupant, whose dyed blond hair, finely tailored suits and gold jewelry reflected an extravagant style some blamed for Harnischfeger’s demise.
The two spend most of their time on the firm’s trading floor rather than at the desks plopped in the middle of the office that boasts a majestic view of the lake and the downtown skyline.
“We never really do anything in there — it’s where we keep our stuff,” Roth said.
To ensure the trading floor and the rest of the building could handle its technological equipment, Stark laid 98 miles of cabling and drilled through concrete to access power lines, Gorens-Levey said.
Neither the updates, nor the beauty of the building compensate for the fact that it was built on land that a master plan originally envisioned for public use, as far as local historian John Gurda is concerned.
“My basic take is it’s a nice building in the wrong place,” Gurda said.
Stark executives worried before buying the building that it was in the wrong place for employees, many of whom live closer to the former office in Mequon. They surveyed employees, though, and most were overwhelmingly in favor of the move despite longer commutes.
“I was a naysayer at first,” said Gorens-Levey, who lives on the North Shore.
“I’m a believer now.”
WHAT’S IN THE BUILDING, ANYWAY?
Stark Investments LP’s building resembles a ship, with a five- story circular tower attached to a four-story rectangle. Here’s how the hedge fund management company uses the space:
Fourth floor (top of tower): Board room and a conference room
Third floor: Executive office, offices/work areas
Second floor: Trading floor and conference rooms
First floor: Atrium and main entrance, cafeteria, offices/work areas and conference room
Lake level: Fitness rooms, parking garage, lockers and equipment rooms
