US NEWS: Entering distress anew

The recent closing of Siguler Guff’s $630 million real estate vehicle marks the New York-based private equity firm’s first foray into the real estate fundraising game in decades. In fact, since the game itself has changed so dramatically since the Resolution Trust Company (RTC) days, when Siguler Guff was first — and last — active in real estate investing, it could be argued that this is the firm’s first entry into real estate fundraising as we currently know it.

The private equity firm, which has $10 billion in assets under management, has a series of distressed opportunity funds unrelated to real estate. This series includes the Distressed Opportunity Funds III and IV, which invest in the securities of firms undergoing financial distress, operating difficulties or restructuring. However, the Siguler Guff Distressed Real Estate Opportunities Fund (DREOF) is its first real estate-focused fund since it launched an opportunity vehicle to buy loans from the now-defunct RTC more than 20 years ago.

“This is the first real estate fund we’ve done since 1991, so we’re very excited,” said James Corl, Siguler Guff’s managing director of real estate investments. 

The new fund is part and parcel of Siguler Guff seeking to ramp up its real estate investment efforts. Indeed, part of those efforts included the hiring of Corl in March 2009 to help launch and lead its distressed real estate investment platform. Prior to heading up Siguler Guff’s distressed real estate business, he was chief investment officer of New York-based global asset management firm Cohen & Steers. 

DREOF, which was launched in the summer of 2010 and closed on 30 December 2011, will target distressed opportunities in the guise of making investments in opportunistic funds, as well as partnering with opportunistic real estate owner-operators involved in all classes of financially distressed real estate. Corl described the vehicle as a “hybrid of an opportunistic fund and a fund of funds,” which “ultimately is focused on distressed opportunities.” Although the bulk of these investment opportunities will be in the US, Siguler Guff also may invest in platforms in the UK, Europe and Japan.

Some market observers noted that Siguler Guff’s entrance into real estate investing is a sign that the asset class is becoming increasingly attractive to private equity firms. In addition to Siguler Guff, firms such as TPG and Kohlberg Kravis & Roberts are seeing that there are opportunities in the distressed real estate space and have entered the capital-raising game over the past 12 to 18 months to invest in sector.

“A number of big private equity behemoths are expanding beyond private equity,” said John Ferguson, a partner at the law firm Goodwin Procter, adding that many private equity shops that “haven’t traditionally been in the real estate space see that it’s an attractive place to be.” He noted that this phenomenon is quite similar to when hedge funds expanded their capital management platforms to include real estate in 2006. 

Siguler Guff’s re-entrance into the real estate investment space already has begun to pay off. Indeed, the firm has invested some $410 million, or nearly two-thirds of the $630 million committed to DREOF, in 11 existing owner-operator platforms.