Clairvue Capital Partners has completed its first investment of secondary fund units since the start of the global financial crisis, the San Francisco-based firm announced today.
The firm said it had acquired an interest in a $25 million original commitment to Newport Beach-based Buchanan Street Partners' fifth fund, the $400 million Buchanan Fund V, and that it expected the deal to be the first of many secondary investments to come.
Buchanan Fund V had its final closing in 2007. The vehicle has more than $400 million in commitments and invested in office, retail, multifamily and industrial equity as well as first mortgage and mezzanine debt investments in 17 markets, mostly in the west of the US.
Clairvue acquired the commitment from an unnamed institutional investor. The firm did not disclose what it paid for the commitment.
“Clairvue's investment was very helpful to one of our institutional investors that was seeking liquidity before the fund had completed its realisation cycle,” said Buchanan Street managing director Robert Dougherty in a statement.
Jeffrey Giller, Clairvue’s managing partner and chief investment officer, said: “Buchanan made some very strong investments for the fund during the market trough and did a great job of executing favourable debt restructures on some of the assets it acquired before the crash, factors which we believe will cause our investment to perform quite well.”
Giller and his partners, Brendan MacDonald and Josh Cleveland, left their former firm, Liquid Realty Partners, in October 2009. Giller and MacDonald formed Clairvue in early 2010 and Cleveland joined the firm in June of 2011. With their first fund, the $250 million Clairvue Capital Partners I, the firm has to this point focused primarily on recapitalising real estate funds at the fund- or project-level and other multi-asset real estate vehicles.
“Most other non-core real estate funds invested the majority of their capital at the peak of the market and applied relatively high levels of leverage,” Giller added. “As a result, equity impairment was substantial and, given the serious questions we had about when a recovery would finally occur, we had felt until recently that real estate secondary investments posed too large a risk for our investors.” He also pointed out that now some recovery has been seen in property values, lost equity is being recreated through debt restructuring, and managers’ write-downs are catching up to market value declines. “Acquiring secondaries is beginning to seem attractive to us once again,” he said.
In addition, Buchanan’s preservation of “dry powder” at the market’s peak, according to Giller, was instrumental to “Fund V's ability to effect accretive restructures in their portfolio and to make opportunistic investments at the market’s bottom”.