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Oaktree sees new fund on horizon

The Los Angeles-based investment manager has held a final close on its latest global real estate fund and is expected to raise up to $1 billion for its real estate debt fund by mid-year.

After holding a final close on its latest global real estate fund last quarter, Oaktree Capital Management already is talking about a new capital-raising effort.

Near the end of December, Oaktree closed on a total of $2.7 billion in commitments for Oaktree Real Estate Opportunities Fund VI. According to John Frank, principal executive officer and managing principal, the Los Angeles-based investment manager already has made significant headway in deploying the fund’s capital.

“We are seeing excellent investment opportunities in real estate,” Frank said, during an investor call late last week. Oaktree has invested more than $7 billion in real estate over the last two years through its two dedicated real estate funds as well as its other closed-ended strategies, and such an investment pace has led its newest closed-ended funds in real estate and distressed debt to be 40 percent and 35 percent drawn. “New fundraising for these strategies may not be far off,” he added.

Howard Marks, chairman, global real estate continues to be among Oaktree’s best opportunities. “Although core real estate, which is not our focus, has recovered substantially, we continue to find opportunity in a number of other areas, including non-performing residential and commercial loan pools and commercial properties in non-core markets,” he said. In Europe, many of those opportunities have arisen due to reduced lending by mainstream banks, which has led the firm’s European team to become particularly active in building platform investments in residential development, senior housing and student housing.

Meanwhile, Oaktree continues to market its real estate debt fund, Oaktree Real Estate Debt Fund, which has gathered $500 million in commitments to date and is expected to attract more than $1 billion by mid-year. “The successor to our P-PIP mandate utilizes the skills of the existing real estate team to invest in real estate debt securities offering a return in the high single-digits – too low for our real estate opportunity funds but still appealing to investors seeking yield,” said Frank.

In December, the firm also became a cornerstone investor in the IPO of China Cinda Asset Management, a Hong Kong-based distressed real estate manager, after both firms announced in November the intention to form a joint venture to pursue distressed investment opportunities in China. Oaktree has relocated one of its real estate professionals to Beijing to oversee the firm’s efforts on behalf of the new venture. Both parties plan to commit up to $500 million each to investments made through the partnership.

“For us it’s an opportunity to learn more about China and to invest shoulder-to-shoulder with the entity in China that probably is best positioned to invest in distressed assets, particularly distressed real estate assets,” said Frank.

As of December 31, Oaktree had invested $113 million through its real estate funds, up from $107 million at the end of 2012. However, the firm suffered a loss of $486,000 during the fourth quarter, compared with income of $6.7 million during the same period one year ago. Income for the year ended 2013 was $14.2 million, down from nearly $20 million for the calendar year 2012.

Economic net income (ENI) for the firm rose to $303.2 million in the fourth quarter of 2013 from $221.7 million in the fourth quarter of 2012, with full-year ENI reaching $1 billion in both years. Assets under management increased to $83.6 billion as of December 31, up from $79.8 billion at the end of the third quarter and $77.1 billion at year-end 2012.