Deals

Colony floats debt REIT

Just as Starwood Capital plans a $500m debt IPO, Colony Capital also launches its own debt vehicle, Colony Financial. This is the first time Colony has managed a REIT, according to regulatory filings.

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Colony Capital has launched its first REIT as it seeks to target distressed real estate loans.

The vehicle, Colony Financial, comes hot on the heels of Starwood Capital floating it’s own $500 million debt vehicle, which the Greenwich, Connecticut-based firm expects to register as a public REIT.

Since the start of 2009, 51 REITs have raised more than $16 billion in equity offerings in the public markets, according to the National Association of Real Estate Investment Trusts (NAREIT).

And just like Starwood, Colony is also hoping to use its public vehicle to target distressed real estate debt opportunities acquiring and originating whole mortgage loans and buying CMBS bonds.

Los Angeles-based Colony said in regulatory filings that a combination of a credit market squeeze, global efforts to delever and falling property values were – and would continue – to cause an “over-correction in the repricing of certain real estate-related debt assets”.

A lack of new originations, the filings added, would create a “protracted opportunity to originate mortgage and mezzanine loans”.

Colony has not managed a REIT before, however last August it closed its private equity Colony Distressed Credit Fund on $800 million. According to the filings, the commingled fund has participated in five FDIC auctions in the US, successfully bidding in two and investing $172 million in four portfolios of commercial mortgage loans and other commercial real estate-related debt investments.

Colony Financial is expected to target FDIC (Federal Deposit Insurance Corporation) auctions for investment opportunities, with Colony adding in the securities documents: “The FDIC has begun disposing of failed banks’ assets primarily through open auctions, a process similar to that utilised during the RTC era of 1989 to 1995.”

Colony Financial will also apply for financing under the US government’s Term Asset-Backed Securities Loan Facility (TALF) for qualifying CMBS investments. Colony Financial will also target loan-to-own investments, real estate owned (foreclosed) properties, debtor-in-possession financing and bridge loans and B-notes.

The vehicle will be managed by Colony Capital managers. Merrill Lynch is underwriting the proposed offering.