Taconic hits hard-cap for distressed fund

The New York-headquartered manager has also formed an overflow vehicle with one of the fund's anchor investors to take advantage of further distress.

Taconic Capital Advisors, a New York-headquartered manager, has hit the $500 million hard-cap on its third real estate fund.

Taconic initially targeted between $300 million and $500 million for Taconic CRE Dislocation Onshore Fund III. All of the investors in the fund are domestic, a mixture of institutional and family office capital. Public pensions make up the majority of the investor base, James Jordan, principal and portfolio manager, told PERE. Around 45 percent of the investors in the fund are new clients for the firm. Investors in the fund include Merced County Employees Retirement Association and Texas County & District Retirement System, per PERE data.

The fund is the firm’s biggest fundraise ever in its signature series. Taconic closed on around $250 million in capital commitments for Fund I in the series and Fund II was roughly $310 million, Jordan said. Although Fund III had reached its hard-cap, there was interest from investors to commit additional capital to the fund. For example, Taconic has created an overflow vehicle with one of its anchor investors to deploy capital beyond its commitment to the fund. Jordan declined to disclose the amount or the investor of that vehicle, but said with the overflow vehicle, the firm can target deal sizes larger than its typical transactions in the $25 million to $50 million range. The overflow vehicle will be similar to a separately managed account, investing in separate deals from the fund.

Taconic’s strategy is a hybrid of distressed real estate equity and debt. This allows the firm to deploy the appropriate capital based on the type of distress and market opportunity. Fund investments will include equity acquisitions, debt originations and purchases of non-performing loans. Similar to Taconic’s prior funds, Fund III is expected to be evenly allocated to debt and equity.

Fund III will represent a slight strategy shift in terms of targeted sectors. While Taconic was focused on office and industrial in its first two funds, the firm is set to focus more on hotels and office in Fund III, Jordan said. Taconic also is likely to selectively invest in mixed-use, multifamily and industrial opportunities.

Around $300 million of the fund has already been deployed into 15 deals. Nine of the 15 investments Taconic has made are in the hotel sector. After the firm held its first close for Fund III in April last year, it identified hotels as the sector with the most distress yet the biggest opportunity to rebound, Jordan said. This year, Jordan said the office sector in particular is likely to show the most distress.

“It’s all being elongated and exacerbated a little by the recent market volatility,” Jordan said. “We think that will cause a lot of the underlying shadow distress to bubble to the top.”