Colony launches new $1bn distressed debt fund

The Los Angeles-based private real estate firm is back in the market with its third commercial real estate debt vehicle, just one year after it raised $1.4 billion for the predecessor fund.

Colony Capital is raising its latest distressed debt fund, Colony Distressed Credit & Special Situations Fund III, with an equity target of up to $1 billion, according to a filing with the US Securities and Exchange Commission. Colony declined to comment, but PERE understands that a first close could come within a matter of days. 

The new vehicle is the successor fund to Colony Distressed Credit Fund (CDCF) II. Along with multiple co-investment vehicles, it attracted a total of $1.4 billion in equity for its final closing in May 2012. At the time, Colony was said to be launching the next fund in the series during the first quarter of 2013. 

Sources said the slight name change for Fund III was made to better reflect Colony’s investment focus, which includes not only large portfolio acquisitions of nonperforming loans but other debt-related situations such as recapitalizations of borrowers that could involve originations of first mortgages, mezzanine debt or preferred equity. That said, PERE understands that the new fund largely will follow the same strategy as its predecessor, although the firm will be pursuing more investments in Europe than it had with the prior fund.

Colony, which is led by chairman Tom Barrack, has committed all of the capital in CDCF II to nonperforming loan portfolio purchases and mortgage originations for development projects and commercial real estate acquisitions in the US and Europe. According to the firm’s website, Colony has closed on at least 29 transactions on behalf of the fund. 

In March, Colony provided financing through CDCF II to Los Angeles-based developer Woodridge Capital Partners for the acquisition of Loch Lomond Marina Village in San Rafael, California from an affiliate of Oaktree Capital Management. Upon completion, the development project will include 81 homes, 26,000 square feet of commercial space and a marina with more than 500 boat slips.