Siguler Guff closes on $630m for opportunistic FoF

The New York-based private equity firm has raised its first real estate vehicle in more than 20 years to target distressed real estate.

Siguler Guff has closed on $630 million of equity for its first real estate vehicle in more than 20 years. 

Although the opportunistic fund of funds – which will target distressed opportunities throughout the US, as well as some parts of the UK, Europe and Japan – was just shy of its initial $750 million target, the New York-based private equity firm has already invested nearly two-thirds of the committed capital to Siguler Guff Distressed Real Estate Opportunities Fund (DREOF). 

The firm did not hire a placement agent, but rather raised the funds for DREOF itself. 

According to James Corl, managing director of real estate investments at Siguler Guff, DREOF, which was launched in the summer of 2010 and closed at the end of 2011, is a “hybrid of opportunistic and fund of funds,” which is “ultimately focused on distressed opportunities”. Specifically, the firm is seeking to invest in both opportunistic funds as well as partner with opportunistic real estate owner-operators involved in all classes of financially distressed real estate assets.

“We’re not sourcing any transactions directly. Everything we’re doing is in conjunction with an operating partner,” Corl added. “This could be in form of a fund, joint venture or owner-operator.”

Of the $630 million that’s been committed to DREOF, $410 million is already invested in 11 existing owner-operator platform relationships. Of those 11, five are opportunistic funds from owner-operators, including commitments of more than $100 million each to real estate funds managed by Rialto Capital Management and The Related Companies. The remaining six commitments are in discretionary operating partnerships.

Although Siguler Guff has no geographical limit as to which funds and platforms the fund can target, Corl imagines that around 90 percent of the equity will be invested in opportunities within the US, with about 10 percent invested in the UK, continental Europe and Japan. So far, all 11 of the current commitments are in the US. 

“The best distress opportunities we’ve seen have been in the US. But we can invest outside of the US,” he said. “We left it open.”

Using roughly 50 percent to 55 percent leverage, DREOF is seeking opportunistic returns of more than 18 percent. The vast majority of investors in the fund, which required a minimum commitment of $5 million, were institutional clients, including endowments, foundations, US corporate, state, municipal and union pension plans. Individuals of high-net-worth accounted for about 5 percent of investors. Although he was unable to disclose specifics, Corl said that the fee structure for DREOF “follows a fund of funds” model, with a base management fee of 1 percent.

Although the private equity firm, which has $10 billion of assets under management, has a series of distressed opportunity funds unrelated to real estate in the market — Distressed Opportunity Funds III and IV — this is Siguler Guff’s first real estate fund since it launched a vehicle to buy loans from the RTC in 1991.

Corl joined Siguler Guff in March 2009 to help launch and lead the firm’s distressed real estate investing efforts. Prior to heading up Siguler Guff’s distressed real estate business, he was chief investment officer of the New York-based global asset management firm Cohen & Steers.