Seeing Diamonds in the Rough
In addition to seeking nontraditional investors, Grain sought out what many might consider an unusual clientele.Â Grain Management not only handles thousands of towers across North America, for leading wireless carriers including Verizon and AT&T, but it also works with the U.S. government, servicing federal, state, and local agencies. “What I like about the government portion of my business is that you have a very good credit tenant and it’s easy to get low-cost capital. They’ve got a triple-A rating,â€ says Grain.
However, doing business with the government is not always easy. Obstacles, such as bureaucratic ones, pose challenges for corporate entities. Grain often receives kudos from others in his industry for the goals he’s been able to reach, but Grain has a different perspective: “I’m not sure if I get kudos for focusing on the government end. It just seems to be lower hanging fruit. I don’t think a lot of people focus on it.â€
Despite his success, Grain says he began to feel that Grain Management’s venture capital business model, which is based on large influxes of cash aimed at getting fast returns, wasn’t the best way to achieve his objectives. A private equity model, with its extended time-horizon, seemed like a better fit for building and developing.
“The capital structure associated with the private equity fund–its prescribed fees and success payments, was a much better structure for the type of assets I wanted to invest in,â€ says Grain. “Private equity seemed to be, at least at the time, the most appropriate capital formation process around the assets I was investing in.â€
In 2013, Grain Management made history when it acquired $287 million in wireless spectrum, the frequency used for wireless communication, from AT&T and Verizon Wireless. It was the largest minority spectrum deal in U.S. history.
“Spectrum, which I would call ‘real estate in the sky,’ is infrastructure as part of the mobile ecosystem. Understanding its importance in that ecosystem, as a derivative of the other things there, is part of my process. I didn’t take any giant steps to move into this space. I stayed within the same species of investment type and characteristic. I’m really trying to stick to that at this point,â€ says Grain.
Using Your Leverage
Grain was also the first to securitize spectrum, creating a $330 million bond offering backed by spectrum versus other assets, such as mortgages or treasuries.
“I was able to create a package of securities that I sold on Wall Street, to very large institutional investors, at a price that looked cheap relative to what that credit should justify. The difference between what I was charging my tenant, my leasee, and what I was paying to the investors that participated in the financing provided a gap. That gap was profitability,â€ says Grain.
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