Leonard Tannenbaum W93 WG94 is no stranger to building a company from the ground up. In 1998, when he was just 27, the former Wall Street analyst launched his credit-focused firm Fifth Street Asset Management. In the years after, he grew the company into a firm overseeing roughly $5 billion in assets before selling it to Oaktree Capital Management in 2017.
Now, Tannenbaum — a member of the Wharton Graduate Executive Board — has embarked on a fresh endeavor with Tannenbaum Capital Group, an alternative investment firm focused on private credit, real estate, and general partnerships. Among its operations, the firm’s TCG Real Estate branch oversees the publicly traded Sunrise Realty Trust and the privately held Southern Realty Trust. The two real estate investment trusts have together committed nearly $1 billion for deals since the start of 2024.
While Tannenbaum’s Fifth Street story largely followed a traditional founder’s arc, the launch of TCG has been shaped by more personal motives. “After selling Fifth Street, I took a few years off, then decided during COVID to show the kids how to start a company,” says Tannenbaum, who launched the firm with his wife, Robyn, and sons Stephen W21 and Adam W23. “We were all living together and decided to build something new.” Wharton Magazine caught up with Tannenbaum to talk about the venture, the experience of starting a business with loved ones, and more.
Wharton Magazine: Thinking back to your days launching Fifth Street, what sparked your interest in starting a credit-focused firm?
Leonard Tannenbaum: I was a sell-side analyst after graduation, but I realized it wasn’t for me. I was doing very little analysis and quickly trading things, going with market sentiment and following algorithms. I moved to a hedge fund, where I got to do a lot of analysis. I had one really good idea at the time, which was to invest in cell towers. I bought a stock — WesTower Communications — for the hedge fund, and it ended up being a winner. I also got my father-in-law at the time to invest in WesTower, and with those proceeds, I started a new company that was the predecessor to Fifth Street.
I built my net worth on a roller-coaster of times — this was 1999, the crash after 2000, and the build-back after that. I started off in equities and moved into structured equity. Then I moved into mezzanine debt and convertible debt. I felt more and more comfortable the more debt-like I got.
WM: What were the greatest challenges you overcame in starting Fifth Street?
LT: If I knew then that most first-time funds fail, I probably wouldn’t have done it, but nobody told me, which is a good thing. I also was told that I wouldn’t be successful, and that drove me even harder. I invested all I had. It was very difficult, but I got some really terrific people to believe in me. There were a few big investors and a lot of small investors, but it was much harder than I thought.
WM: What are some things you learned from the first time that you’ve applied to TCG?
LT: The first time, there was a decent market, and we were early pioneers in credit. It hadn’t been institutionalized. This time, we had to find the right opportunity set: real estate, which is different from what I’ve done. Instead of doing it myself, I’ve hired excellent CEOs for each one of the business lines. I should have done that the first time around. I’ve looked to find excellent talent, support them, and coach them. This time, we also have a lot of money and can seed our own ideas.
I was also a very small shareholder the first time. This time, we are the largest shareholder of everything we do. And this time, I put my name on the door.
WM: Can you describe what this journey has been like for you and your family?
LT: That’s also a big difference: I have the pleasure of teaching my children at the same time. My son Stephen works with Brian Sedrish, the CEO of our real estate group. My son Adam is the head of syndication at TCG, and Robyn is not only head of capital formation and my business partner, but also my partner in life and mother to our two young daughters. Together with our senior team, Adam, Robyn, and I lead the development of TCG’s strategic roadmap. Max [W22], my second child, is an entrepreneur building a wasabi business. He doesn’t work with us but loves hearing the stories. My 10-year-old son and our daughters — who are four and one — are certainly watching and absorbing.
WM: I was going to ask what the youngest ones’ roles are.
LT: [Laughs] It’s amazing what you absorb as a child from your parents, given what we do every day. If it’s not the intricacies of the business, it’s that mom and dad are going to work again, and they’re lending money — my four-year-old could tell you that.
WM: Going back to TCG’s operations, what real estate opportunities are you looking to invest in?
LT: The first really great opportunity we found was in real estate lending, because a lot of the same characteristics were there as in 2008, when I built the direct lending platform. The office market collapsed and caused many of the banks to pull back. We did almost a billion dollars of deals last year from scratch. Regarding our commercial real estate portfolio, unlike most lenders, we have no exposure to office buildings and have no legacy assets. Our focus is primarily on the southern United States.
WM: What attracted you specifically to the Sun Belt region?
LT: We live in Palm Beach, Florida, and work in West Palm Beach. What did Warren Buffett say? Always invest in what you know. We feel very comfortable in Florida. The Southern states — Florida, Tennessee, Texas — have also had great growth.
WM: You also invest within the cannabis industry through the publicly traded Advanced Flower Capital. Given the regulatory landscape for the industry in the U.S., what do you see as the biggest opportunities and challenges there?
LT: AFC was our first foray back into asset management, because we saw opportunity there four years ago. That’s changed. It’s very challenging. AFC is actually not in TCG, because it’s cannabis. The business is in a separate office with a separate registered investment advisor. I think the inflection point for cannabis is, does the DEA reschedule cannabis or not? If it’s not rescheduled, the industry is going to be severely challenged. If it is rescheduled, it could breathe new life into it. We’re waiting to see what happens.
WM: Whether or not through TCG, what’s the most important advice you’ve imparted to your children, regardless of their ages?
LT: A lot of people say it, but I don’t know if they take it to heart: Do something that doesn’t feel like a job. We don’t do this because we have to. We do it because we love building something, delivering results, teaching, and mentoring.
Also, you can’t have a good gut instinct unless you have enough data points. Data points take time to generate, so you just need to be patient. When you come out of college, spend the next five years getting that data and figuring out what you want, and pivot quickly if you don’t like what you’re doing, so that you’re gathering the data in something you like.
