Blueprint: China Evergrande’s US bankruptcy filing, Fortress’s $1bn office loan portfolio deal, PERE introduces fund performance features

China Evergrande’s Chapter 15 bankruptcy filing creates further turmoil for China’s ailing economy, Fortress makes a contrarian bet on New York City office with a $1 billion loan portfolio purchase, PERE introduces benchmarking tools for fund performance, and more in today's briefing, exclusively for our valued subscribers.

They said it

“When it comes to regional banks, it’s not about office buildings. The Achilles’ heel on regional banks is multifamily”

Scott Rechler, chief executive of RXR Realty, speaking on CNBC about potential commercial real estate losses for banks and investors.

What’s new?

More warning bells for China Evergrande
The story of the world’s most indebted property developer is nearing an important juncture. At the end of last week, Shenzhen-headquartered China Evergrande, which has been buckling under more than $300 billion of debt since 2021, filed for Chapter 15 bankruptcy protection in the US. The firm declared the filing a “normal procedure” as it works out a restructuring plan for almost $32 billion of international obligations.

Nonetheless, the update also prompted further warning bells that China’s biggest housing business was struggling to handle its loans. In a statement responding to media reports, China Evergrande chairman Hui Ka Yan asserted “the company is pushing forward its offshore debt restructuring as planned.”  That has done little to assuage markets, with onlookers believing the firm’s woes are compounding China’s flailing economy, which some analysts now expect to miss the year’s 5 percent GDP growth target. Nomura is one bank downgrading its GDP growth forecast to 4.6 percent.

Fortress’s contrarian deal
Fortress Investment Group this week acquired a roughly $900 million office loan portfolio from Capital One. The deal gives the New York-based manager significant office exposure in its home market, which is understood to have accounted for a large portion of the portfolio. Capital One’s office loan portfolio sale stands out both for its smaller size compared with other bank portfolio downsizings and its focus on a city where office valuations have seen widespread declines. Fortress’s purchase from the McLean, Virginia-based bank also cuts against the grain of current market sentiment, which has steered more lenders away from originating US office loans in recent quarters. Office financing in New York City has primarily favored asset conversions and refinancings in 2023 to date, affiliate title Real Estate Capital USA data shows.

Highly rated
What is in a rating? A lot, if you ask Hong Kong-based private equity real estate firm Gaw Capital Partners. On Friday, the firm announced it was awarded an ‘A+ foreign currency long-term issuer rating with a stable outlook’ by Japan’s Japan Credit Rating Agency. “This recognition, as a significant milestone for the firm, affirms our financial strength, credit worthiness and stability,” president Kenneth Gaw said in a statement. “We are keen to build a stronger presence in Japan.

According to one source familiar with the firm, who requested anonymity: “The accreditation should help the firm forge local business ties and be considered a prelude to strengthening its balance sheet by issuing bonds to help capitalize corporate expansions in the country. It’s the right time to put a bit of leverage on the balance sheet to make some principal bets.”

See PERE’s latest coverage of Gaw Capital’s aspirations for Japan here.

PERE benchmarking tools

Drumroll, please!
With distributions few and far between in 2023, investors are becoming more selective with their capital. It stands to reason, then, that investment performance and manager track records will be facing greater scrutiny than ever before. As such, new ways to compare and assess this data will be in high demand.

Enter PERE‘s enhanced investment performance offering. Our database now enables platinum subscribers to access benchmarks comparing fund-to-fund performance and quartile-rank funds against different strategies, vintages and regions. The release, which builds on fund performance charts introduced earlier this year, means users are now able to access:

Fund-to-fund comparison – to compare the performances of up to five funds across performance metrics like DPI, TVPI, IRR, J-curve, NAV and cashflow;

Fund quartile ranking – to understand the relative performance of a set of funds against a user-defined universe of funds by strategy, region, vintage or fund size;

GP fund performance data – to understand the fund performance of a given GP’s funds (where available);

Fund performance methodology – to clarify key performance definitions, calculations and how PEI Group data is sourced.

Be sure to explore these new features if you haven’t already. The new tool is also available on affiliate titles Private Equity International, Infrastructure Investor and Private Debt Investor.

Trending topics

Shock waves
RXR Realty’s Scott Rechler is not the only real estate executive eyeing potential distress outside of office. For the Market Pulse analysis in PERE’s upcoming September issue, we spoke with Ralph Rosenberg – who wrote a white paper touching on distress in “on-trend sectors” – at greater length on the topic. KKR’s global head of real estate noted how lenders will be more discriminating about originating loans in even favored sectors and markets due to the negative effects of their exposure to the office sector, which accounts for about 40 percent of real estate exposure across both regional and money-center banks. “The epicenter of the earthquake might be traditional commodity office space, but the tremor will be felt in all other sectors based on availability of capital and the pricing of that capital,” he said. For more on Rosenberg’s perspectives, including three “high-level issues going on that people cannot ignore,” read the full story here.

Europe’s shrinking €1bn fund market
This time last year, there were 20 €1 billion-plus closed-end real estate funds in market focused solely on Europe, targeting €26 billion in aggregate, per PERE data. As of this week, however, there are only five such vehicles in market, with a total target size of €15 billion. The latest fund to join this small cohort is Harrison Street’s fourth fund in its European opportunistic series. The Chicago-based manager is looking to raise €1.5 billion for Harrison Street European Property Partners IV, as per an SEC filing issued last week. This puts it below only New York mega-manager Blackstone and UK-based Aviva Investors in terms of Europe-only funds launched so far this year, with these managers seeking €9.5 billion and €1.8 billion for their respective vehicles. Fundraising has dried up globally in a volatile macro environment, but Harrison Street is pushing ahead with its European expansion plans – this latest fund is its largest yet in the region. Check out our interview with chairman and CEO Christopher Merrill here.

Data snapshot

Rising allocations
Real estate allocations increased for all investor types partly due to the denominator effect impacting most institutions’ investment portfolios in H1 2023, according to PERE’s latest Investor Report, which will be published this week. The increase was particularly significant for sovereign wealth funds, whose allocation rose for the first time in four years during the first half.


Delin changes CEO again
European logistics manager Delin Property has appointed Tom Wattles [his LinkedIn profile here] as chief executive officer. The real estate veteran – who previously was co-founder, co-CEO and chairman at Prologis – joined Delin in 2021 as a strategic adviser to help grow its institutional investment platform. Wattles’ appointment marks the second CEO change in two years for Delin, which appointed its last CEO, former Round Hill Capital and Heitman executive Rob Reiskin [his LinkedIn here], in October 2021. That was the year when Delin started managing institutional capital with the launch of its first commingled fund Delin Property Fund I.

Investor watch

Over the worst?
Norges Bank Investment Management, the bank managing the assets of the world’s largest sovereign wealth fund – Norway’s $1.4 trillion Government Pension Fund Global – has announced a return of -2 percent for its overall real estate portfolio for the first half of 2023. In its half-year report issued last week, NBIM said its unlisted real estate investments returned -4.6 percent for the period, compared with 1.7 percent for listed real estate. The report cited the sharp fall in the value of its US office investments as the “main driver” behind the negative return on its unlisted portfolio, owing to increased vacancies. Despite this, the investment management arm of Norway’s central bank is undeterred on its commercial real estate convictions. “We have not been selling. We have been staying put and continuing to own what we have,” said NBIM’s chief executive officer Nicolai Tangen on Bloomberg TV last week. “I suspect that we may have seen a lot of the bad news now.”

This week’s investor meetings

Wednesday, August 23

Thursday, August 24

Friday, August 25

Today’s letter was prepared by Evelyn Lee, with Jonathan Brasse, Charlotte D’Souza and Christie Ou contributing