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Oaktree set to raise $3.5 billion for RE

The Los Angeles-based investment management firm is on track to exceed capital raising expectations for both of its real estate strategies.

Oaktree Capital Management is nearing the end of fundraising for its global real estate opportunity fund as well as its property debt program. In an earnings call on Friday, the alternative asset manager revealed that it had surpassed or is close to surpassing its initial equity expectations for both real estate strategies.

During the third quarter, Oaktree nearly doubled its equity haul for its current global real estate fund, Oaktree Real Estate Opportunities Fund VI, collecting a total of more than $2.3 billion in commitments, up from more than $1.2 billion at the end of June. John Frank, managing principal at Oaktree, said during the call that the firm had concluded marketing for Fund VI and is expected to reach approximately $2.8 billion in equity by year’s end. The final close for the fund – which was launched in August 2012 with an initial target of $1.5 billion – is anticipated in December.

The investment manager also has continued to attract capital for its real estate debt program, which now totals $450 million after amassing an additional $150 million in equity during the third quarter. The program includes capital from its commingled real estate debt fund, Oaktree Real Estate Debt Fund, as well as separate account vehicles. According to Oaktree’s third-quarter earnings report, the fund itself had total committed capital of $90 million as of September 30. The firm anticipates raising $700 million in total commitments for its real estate debt strategy by year’s end, beating its original expectation of more than $500 million. However, it was not clear whether Oaktree would conclude fundraising for the property debt program by the end of the year.

The firm’s real estate business generated a gross return of three percent during the third quarter and 20 percent during the past 12 months, according to Frank. “Strong risk-adjusted investment performance across our platform continued to drive fundraising success in the third quarter,” he said. “We’re well on our way to a seventh straight year of approximately $10 billion or more of gross capital raised.”

Meanwhile, Oaktree has been busy deploying real estate capital, having drawn down nearly $1.1 billion from Fund VI and half of the capital in the real estate debt fund as of September 30. “As we look around the world, our investment opportunities remain strongest in Europe and in real estate globally,” said Frank. “So far, the majority of the deal flow that we’ve seen to date has been from banks in the UK and Ireland. However, we’re starting to see more flow from banks in continental Europe, particularly Spain.” The majority of the deal flow, he added, has come from shipping or real estate loan portfolios, which European regulators have identified as problem areas.

Frank acknowledged that European had become increasingly crowded with competitors. “There is more competition, there’s more financing available for people to leverage purchases,” he said. Despite this, he pointed to Oaktree’s 15-year track record in Europe, the contacts associated with its longstanding presence and its 130-strong team across the region. “I think the strength is, we have an ability to generate our own deal flow there,” he said.

Oaktree reported a decline in economic net income during the third quarter, dropping to $157.4 million from $368 million in the third quarter of 2012, although it did not provide a reason for the decrease. The investment manager’s assets under management also fell by $1.2 billion from September 2012, as a result of a high level of closed-end fund realizations that led to $15.5 billion in fund distributions.