Encore holds second close on Fund II

The San Francisco-based real estate fund manager has raised about half of its $400m to $500m target for its latest opportunistic vehicle and is expected to conclude its capital raise by early 2013.

Encore Housing Opportunity Fund has completed its second round of fundraising for its second opportunistic fund, Encore Housing Opportunity Fund II. The firm has amassed $200 million in commitments to date, including nearly $150 million in the second close earlier this week on top of the $56 million in the first close in July, when the fund also was launched.

Early investors in Fund II included family offices and institutional investors, with 80 percent of the capital coming from the US and 20 percent from Europe and the Middle East. Encore anticipates holding a final close on the fund – which will invest in distressed residential and mixed-use real estate assets primarily in California, Arizona, Florida, Nevada and Texas – during the first quarter of next year.

The firm already has invested a portion of Fund II’s capital in two projects, including a 550-acre site in Jacksonville, Florida entitled for 1,300 single-family and multifamily homes; and a development in San Diego, California that will call for the construction of 72 single-family houses.

Encore has an additional pipeline of $200 million in acquisitions for undeveloped or partially developed entitled land sites in California, Florida, Arizona, Texas and Washington State. Those transactions are due to close between the fourth quarter of this year and the second quarter of 2013.

“We’re seeing an increase in deal flow,” said Oscar Vasquez, chief operating officer of Encore. “We’re seeing banks now well-capitalised enough that they’re starting to write off these distressed assets that they’ve held for several years.” Banks are selling those assets effectively at a loss, about 20 percent to 40 percent off of peak pricing, he said. Meanwhile, other new sellers are entering the market, including hedge funds that are starting to unload residential properties.

Encore typically targets individual assets between $5 million and $25 million in size, which differentiates the firm’s funds from larger opportunity funds that typically acquire portfolios of loans and assets. This more targeted acquisition size typically includes properties that are “not on the radar of the larger opportunity funds,” said Vasquez.