New funds materializing as flood of distressed debt attracts opportunistic buyers
As the coronavirus shutdown hits non-essential businesses and threaten revenue prospects within the commercial real estate space, aggressive investors are taking advantage of the resulting rainfall of distressed debt from beleaguered lenders.
As reported by the Wall Street Journal, alternative investment firms such as KKR, Kayne Anderson, and Terra Capital Partners have either closed or are raising distressed funds from high-net-worth families, sovereign-wealth funds, and others looking for opportunities within the upended market.
“With property sales in the commercial-property market nearly inactive, these firms are focusing on real-estate debt getting dumped on the market by troubled real-estate lenders and others,” the Journal said.
Billions have been raised at an unforeseen pace. Data from Preqin reflected a record 939 commercial real estate funds around the world collectively targeting US$297 billion as of early April.
The Journal said pension funds and endowments are staying away from the space for now, focusing instead on considering the risks of further damage to their stock portfolios. In contrast, affluent family offices and sovereign wealth funds are reportedly taking a more aggressive stance as they try to make up for losses in their current property portfolios or take inspiration from fortunes made during similar downturns in past crises.
“We had to turn investors away,” said Al Rabil, head of Florida-based Kayne Anderson Real Estate, which reportedly completed a US$1.3-billion raise for a fund targeting debt sold by distressed sellers within two weeks.
The stars aligned for some investment managers, including Blackstone, that were closing funds just as the crisis hit; they now a full quiver of arrows with which they can target distressed acquisitions in the coming months.
Others are augmenting their current stores of dry powder by raising new money, including KKR, which is reportedly working on a distressed fund focused on real estate as well as other opportunities.
