When Oaktree Capital Management launched its initial public offering in November 2012, it identified real estate as a growth area for the firm. That growth has indeed materialized, as the firm revealed during its first quarter earnings call last week.
“Our real estate strategy has grown fourfold over the last five or so years,” said John Frank, managing principal at the firm. “We think it will continue to grow, as it has deployed capital rapidly.”
Indeed, Oaktree has invested more than $8 billion in real estate over the last couple of years, Frank noted. Interestingly, however, that capital was invested across its closed-ended funds, not just in its real estate-focused vehicles.
“One of the greatest strengths of our approach is our ability to operate across the investment spectrum in multiple fund strategies,” said Frank. In the property business, “non-real estate funds have joined our dedicated real estate group in exploring and taking advantage of the opportunity.”
For example, Oaktree’s London-based European principal investments group created a student housing company in 2011, and today it has become one of the largest owners and operators of student housing in the UK. To date, the firm has invested approximately $325 million of capital from its recent European principal funds through partnerships with distressed developers and acquisitions of development projects, buildings and other sites.
Meanwhile, through its distressed debt funds, Oaktree currently is in the process of merging two homebuilders that it acquired in the past year, Countryside Properties and Millgate Developments, to create the second-largest privately held homebuilder in the UK. “It’s focused on a most attractive market for the southeast part of the country, which is poised to benefit disproportionately as the housing market improves,” said Frank.
Additionally, Oaktree’s real estate and distressed debt funds have acquired more than 60 residential and commercial real estate non-performing loan portfolios since 2010, representing more than $10 billion of unpaid principal balances. “We believe that our affiliated special servicers have given us a real advantage in both underwriting and working out the pools,” said Frank.
Frank noted that Oaktree’s real estate and distressed debt teams have been sourcing opportunities at a faster-than-expected pace. The firm’s current real estate fund, Oaktree Real Estate Opportunities Fund VI, now is more than 75 percent committed, while its latest distressed debt fund, Oaktree Opportunities Fund IX, is more than 60 percent committed. “Therefore, we anticipate beginning to raise their successor funds later this year,” he said.
Separately, Oaktree revealed in its first quarter earnings results that it had raised $794 million through its real estate debt strategy as of March 31. Of that amount, $518 million was gathered through Oaktree Real Estate Debt Fund, while the remainder is held in separate accounts. During its fourth quarter 2013 earnings call in February, the firm said it anticipated that the fund would reach more than $1 billion in commitments by mid-year.
As of March 31, Oaktree had invested $124.74 million of its balance-sheet capital into its real estate funds, about level with its investment activity of $125.12 million at the end of the first quarter in 2013. Investment income from real estate funds was $5.47 million during the first quarter, compared with $9.21 million during the same period one year ago.