CarVal Investors is to shutter its commercial real estate fund management business. However, the investment management arm of US agricultural powerhouse Cargill will continue to engage the asset class via investments in real estate debt in the US and in Europe, specifically in loan portfolios and structured credit strategies.
The move that has seen four senior executives spin out the European real estate fund management arm to form a new business. One of those executives, Robert Balick, CarVal’s former head of European real estate, is to be a partner in the real estate fund management business, which has yet to be officially named.
Balick and his team will become senior advisors to ensure CarVal’s existing fund in Europe is wound down in an orderly manner. The firm held a final closing for its CVI Europe Real Estate Partners fund on €350 million in 2015.
Balick, who joined CarVal in 1997 and became head of European real estate in 2010, said the new business would continue a similar investment strategy to that of CarVal. “This gives us the opportunity to continue what we have been doing for the last 20 years, which is opportunistic equity real estate investments,” he said. “The type of transactions we have been doing in the past, and that we are planning to do in the future, are investments in real estate portfolios where we buy in bulk and sell unit by unit. We are also going to be doing large single-asset restructurings of existing buildings in order to reposition and sell them to institutional investors.”
The real estate world has seen numerous spin outs in recent years, with mixed results. According to Jos Short, founder of pan-European asset management firm Internos Global, there are two prerequisites for a rigorous and enduring business. “The two key points are your track record with previously managed funds and secondly the quality of the team: their ability to source transactions, underwrite them correctly and factor in the risks,” said Short. “The two best examples are probably Guy Hands spinning out Terra Firma from Nomura, and Ric Lewis spinning Tristan out of AEW Curzon. The investors loved Ric and that’s been extremely successful.”
Another industry source told PERE that for any spin out to work, the individual leading the new business must have “a couple of large investors from his old firm in his pocket.”
The new real estate business will soon be putting its investor ties to the test, as the firm is said to be looking to launch its debut vehicle toward the end of 2017 and has already begun reaching out to institutional investors.
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