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AMERICAS NEWS: Passive positioning

In trying to take advantage of distressed real estate markets through debt structures, private equity investors have typically been focused on one key aspect: getting as close to the equity as possible. As the saying goes, debt is the new equity. Indeed, many fund managers are targeting debt and recapitalisation deals with the ambition of getting equity-like controls over the underlying asset. 


However, it’s a strategy that has been questioned by ex-Liquid Realty Partners chief investment officer Jeff Giller, who – in launching his new firm Clairvue Capital Partners last month – said he would look at recapitalisation opportunities by taking passive, non-controlling positions in the capital stack instead. 

Giller said Clairvue, launched with backing from Goldman Sachs’ private equity group, will target various recapitalisation deals, through private equity real estate funds, operating companies, joint ventures, portfolios and assets as well as limited partners in need of capital.

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Giller

“We will be investing in the form of preferred equity, subordinated debt, and in certain cases, making direct equity investments. We will be passive, indirect investors,” Giller said. The idea is to invest with strong managers, without forcing a change of control and introducing added risks to a workout situation. “Most managers know more about their assets and how best to preserve and add value to them than we will, so we feel that all parties are better off if the manager keeps control.”

Giller added: “The unique aspect of this down cycle compared to others is that there are plenty of buyers ready to acquire assets at cheap prices, but owners are able to hold on to their assets rather than being forced to sell them at deep discounts. The problem is that the assets and the structures they are being held in are in need of capital, but the sources of capital to invest on a passive basis, behind existing owners, are limited.”

Most managers know more about their assets and how best to preserve and add value to them than we will, so we feel that all parties are better off if the manager keeps control.

Giller founded Clairvue with former Liquid acquisitions director Brendan MacDonald after both left the secondaries firm last October and September, respectively. 

Clairvue plans to open offices in London and New York in the near future. The firm’s first fund, Clairvue Capital Partners I, has secured commitments from Goldman Sachs’ private equity funds and has already held a first close on $250 million. It is believed to be targeting $500 million, although Giller declined to comment.

He said that Clairvue would invest globally with a strong focus on European and US opportunities, not least helping property owners buy back their own debt at discounts. Liquid’s former director of business development Josh Cleveland, who left the firm at the same time as MacDonald, has not joined Clairvue and is currently managing the development of a boutique hotel in the Dominican Republic.