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Colony holds final close on distressed debt fund

The Los Angeles-based private real estate firm has attracted $1.4 billion in commitments to its commercial real estate debt investment vehicle and related sidecars. The firm is due to launch a successor fund early next year.

Colony Capital has closed its latest debt fund, Colony Distressed Credit Fund (CDCF) II, raising a total of $1.4 billion in base and co-investment capital. Investors include the Florida State Board of Administration and the National Pension Service of Korea, which committed $75 million and $150 million, respectively, to the vehicle last year.

It is unclear how much of the capital raised was earmarked for the main fund, which was targeting up to $1 billion in commitments, and how much was for the co-investment vehicles. Colony launched CDCF II in 2010, holding a first close of $350 million in the main fund and raising $150 million through a feeder fund in March 2011, according to filings with the US Securities and Exchange Commission. Colony also collected an additional $180 million in co-investment capital as of December.

The firm, led by chairman Tom Barrack, already has deployed more than 50 percent of the capital in the fund investing in distressed mortgages and mezzanine debt in the US and Europe. According to the firm’s website, Colony has executed 14 transactions on behalf of the vehicle to date, including the origination of an $18 million loan to struggling commercial real estate services firm Grubb & Ellis during the first quarter of 2011 and the subsequent sale of debt in February at a slight discount-to-cost basis.

Other deals included the acquisition of a 40 percent managing member interests in two FDIC portfolios, comprising a total of more than 1,000 non-performing loans, and the purchase of single-family homes through a new management company, Colony American Homes, to execute a residential rental strategy across the US. The fund is said to be targeting a 12 percent to 15 percent internal rate of return.

Colony declined to comment, but sources said the firm is planning to launch a successor fund to CDCF II during the first quarter of 2013. PERE understands that Colony currently is focused on investing in debt rather than equity because of the greater number of compelling deals in the debt space.

Colony’s previous debt offering, Colony Distressed Credit Fund, raised a total of $900 million in equity commitments in 2008, after just one month of fundraising.