Canyon Capital eyes recaps as it deploys $800m of equity

The firm, which manages the $1bn Canyon Johnson Urban Fund, has just bought the construction loan and equity interests in Brooklyn’s 20 Henry St project, after Urban Realty and AIG defaulted on the scheme’s $31m loan.

Canyon Capital Realty is eyeing struggling developers and other recapitalisation opportunities as it starts to deploy around $800 million of equity from its latest opportunity fund.

The Los Angeles-based firm has just invested an undisclosed sum from its $1 billion Canyon Johnson Urban Fund III, buying up the construction loan and equity interests secured against the stalled condo development, 20 Henry Street in Brooklyn.

The original developer, Urban Realty Partners, and its equity partner, AIG, defaulted on the Brooklyn development’s $31.5 million construction loan in March 2009, just three months after work was halted owing to a lack of money amid the credit crisis.

The lender, Bank of New York, is believed to have sold the loan to Canyon at a roughly 25 percent discount to the unpaid loan balance, around $16.6 million, according to people familiar with the matter. A report in the Wall Street Journal claimed AIG recovered about 15 percent to 20 percent of its equity in the transaction.

Canyon Capital declined to comment on financial details, however managing partner, Bobby Turner, said the firm was actively pursuing recapitalisation opportunities, not least non-performing loans still sat on bank balance sheets.

He said banks were starting to deal with some of their legacy loans, particularly those involving partially completed, or stalled, development projects or where a complex real estate workout was required.

And with more than $800 million of dry powder remaining in Fund III, Turner said the next 24 months would be “very exciting. We didn’t do a deal for two years and it’s only in the last six months that we have found deals that were interesting and made sense on a risk-adjusted basis.”

Turner said Canyon – which targets transit-orientated real estate in ethnically diverse, urban areas – was currently looking at a variety of deals, including hospitality, land and other developer recapitalisations.

In August, Canyon provided $22.6 million in financing to development group OL Washington to acquire the construction and mezzanine loans and finish building a 63-unit condo project in Brooklyn’s Clinton Hill area. Last month, the firm acquired 44 acres of land in Cambridge, Massachusetts, and in partnership with the HYM Investment Group and Atlas Capital Group will develop the former Pan Am rail yard into a mixed-used residential, commercial office, retail, hospitality and life sciences complex.

Urban Realty will continue to develop the Henry Street project, which is one-third complete and has another 14 months to 16 months of construction remaining. The former candy factory will be developed into 39 condo units.