CMBS ‘the future’ of real estate business

Racebrook Capital, which is still raising its first discretionary real estate fund, is eyeing the massive amount of CMBS product that is due or coming due, following reports of record delinquencies.

The real estate investment world should be targeting its efforts on the US CMBS market with securitised loan delinquencies at record-highs and roughly $190 billion of product coming due over the next five years, according to Fitch Ratings.

“The CMBS market is the future of the workout and real estate business,” said Racebrook co-founder and chief executive officer John Cuticelli. Earlier this week, CMBS data provider Trepp said US CMBS delinquency had hit 8.4 percent – up from just 2.8 percent one year ago.

Racebrook is believed to be raising its first discretionary real estate fund, targeting $250 million and gross IRRs of 18 percent. The fund is expected to target distressed debt and equity investments in North America, particularly non- and sub-performing whole loans, as well as distressed construction loans, CMBS, mezzanine notes and distressed equity sales.

Cuticelli declined to comment on the fundraise, but said the bid-ask gap for assets was still “a bit far apart” adding: “We’re not anxious to throw money at the marketplace without understanding completely where we believe that money is going and what the relative returns are.”

Last August, Racebrook acquired bankrupt real estate auction house Sheldon Good and has since been working closely with its auction and advisory arms to source deals. As a result of the acquisition, Cuticelli said Racebrook was implementing a new marketing campaign for the auction business, employing  a “hybrid” of conventional sales, private sales and auctioning. According to Cuticelli, 60 percent of Sheldon Good’s business is commercial, with the remaining 40 percent being residential, split between “trophy” homes and condominium-type products.

Cuticelli’s son Ryan also joined the firm at the start of this month, leading the legal and compliance department. Cuticelli’s older son Jonathan has been with Racebrook since the acquisition of Sheldon Good last August.

Racebrook was originally a portfolio company of Warburg Pincus, which committed $100 million of capital to Racebrook through its Warburg Pincus Fund VIII vehicle, according to documents previously seen by PERE.

Cuticelli, who served as an executive at Sheldon Good between 1988 and 1990 and later at real estate development firm Max Capital Management, co-founded Racebrook with chief investment officer Victor Fracaro. Fracaro was previously senior investment officer at real estate investment firm DivcoWest and a former investment professional at Morgan Stanley Real Estate during the 1990s.