Fortress, Cerberus to Raise Property Funds
Jim R. Bounds/Bloomberg
Fortress Investment Group LLC (FIG),
Colony Capital LLC and Starwood Capital Group LLC are among a
record number of private-equity firms raising real estate funds,
according to people familiar with the process, driving down fees
in a business reeling from earlier losses.
There are 441 private-equity firms raising real estate
funds, 63 more than a year ago and almost twice the number in
2008, according to London researcher Preqin Ltd. Companies
including Related Cos., the New York developer founded by
Stephen Ross, and asset manager AllianceBernstein Holding LP (AB)
have wooed investors and almost completed fundraising, said two
of the people, who asked not to be named because the process is
“Despite the turmoil of 2008, sponsors can still make a
compelling pitch that there are opportunities to invest in
commercial real estate either by making loans or buying
properties and debt,” said Ben Thypin, director of market
analysis for Real Capital Analytics Inc. in New York.
“Commercial real estate is still seen as a space for outsized
Managers, many still suffering losses on funds raised from
2005 through 2008 as property prices peaked, are back in the
market because some pools are winding down after the typical
three-year commitment period, said David Hodes, managing partner
at New York advisory firm Hodes Weill Associates. With firms
seeking $150 billion for real estate, some are offering lower
fees and committing more of their own capital, Preqin said in an
‘Long, Dry Season’
“Managers that have performed well on a relative and
absolute basis, treated their investors well throughout the
financial crisis and demonstrated an ability to invest in this
current environment will raise their next round of capital,”
Hodes said in an interview. “For many of the others, it is
going to continue to be a long, dry season.”
For funds raising $1 billion or more this year, the average
management fee has fallen to 1.33 percent, according to Preqin,
less than the industry standard of 1.5 percent and below the
average charged by those funds in 2007 and 2008.
Real estate funds accumulated $135.2 billion in 2007 and
$142.4 billion at their 2008 peak, or 21 percent of all private-
equity raised that year, before dropping to $50.7 billion in
2009 and $44.2 billion last year, according to Preqin. Funds
raised in 2007 faced an average annual loss of 14.2 percent as
of December, and those raised in 2008 were down an average of
2.2 percent, Preqin reported.
At this time last year 378 private-equity firms sought $134
billion for real estate funds, according to Preqin, with the
same number of managers seeking $199 billion in 2009.
Related is almost done raising $1 billion for a distressed
real estate fund and has taken control of properties in
Manhattan, Chicago and Florida, another of the people said. The
developer, hired in 2008 by Deutsche Bank AG to oversee
finishing the defaulted Cosmopolitan casino resort in Las Vegas,
has told clients that, unlike many private-equity firms, it will
manage distressed projects. That will allow it to limit fees by
not relying on other operators, the person said.
AllianceBernstein, a New York-based fund manager with $456
billion in assets, is close to raising $1 billion for a real
estate pool after securing a commitment from Singapore’s state-
owned investment company Temasek Holdings Pte., one of the
people said. That fund, led by former Goldman Sachs Group Inc. (GS)
partner Brahm Cramer and iStar Financial Inc. President Jay
Nydick, has offered to some investors to forgo the usual fee on
commitments and only charge a fee on invested capital, according
to an offering document.
Fortress, the New York-based buyout and hedge-fund firm run
by Daniel Mudd, and Thomas Barrack’s Colony in Santa Monica,
California, are amassing debt funds that will target real estate
opportunities, the people said. Colony, which said it bought 370
million euros ($534 million) of troubled real estate loans from
German banks this month, has raised about half of its $1 billion
target, one of the people said.
Northwood Investors LLC, the New York firm started by
former Blackstone Group LP (BX) executive John Kukral; Boston-based
Rockpoint Group LLC; and Barry Sternlicht’s Starwood Capital in
Greenwich, Connecticut, are each seeking about $2 billion for
real estate funds, the people said.
Cerberus Capital Management LP, the New York-based private
equity and hedge-fund manager, is in the early stages of
marketing its next real estate fund, according to a person
familiar with the process. The firm’s last property fund, which
raised about $1 billion in 2008, exceeded its target of 20
percent annualized gains as of the first quarter, the person
Wall Street’s Exit
Representatives of Related, Cerberus, Colony, Fortress,
Starwood, Rockpoint, AllianceBernstein and Temasek declined to
comment. A Northwood representative didn’t respond to telephone
Private-equity firms may benefit from diminished Wall
Street competition, after some banks exited or were left to
rebuild their real estate businesses when the credit crunch
halted the flow of cheap debt financing and depressed property
values starting in 2007, the year before Bear Stearns Cos. and
Lehman Brothers Holdings Inc. collapsed.
Losses, manager turnover and a new regulatory environment
limiting risky investments have affected Goldman Sachs’s
Whitehall property funds and Morgan Stanley’s real estate
investing business. Lehman Brothers, the largest underwriter of
mortgage-backed securities at the market’s peak, filed for
bankruptcy in September 2008 and is liquidating assets.
That void may help larger private-equity groups catch
$4 Billion Target
Brookfield Asset Management Inc. (BAM/A), which manages about $150
billion in assets including $76 billion of commercial property,
is aiming to raise $4 billion for a global real estate fund, the
company told analysts in May. The Toronto firm led an investor
group including Bill Ackman’s Pershing Square Capital Management
LP that brought mall owner General Growth Properties out of
bankruptcy in November.
Blackstone in New York, the world’s biggest private-equity
firm, with $159 billion under management, has said it’s raising
its seventh real estate fund with a target of about $10 billion.
The firm told investors in a letter yesterday it has already
raised $4 billion, four months after kicking off fundraising.
Carlyle Group LP is gathering a new fund for U.S. property
deals, said a person briefed on the plan who asked not to be
named because the Washington-based fund is private.
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