Siguler Guff fund targets distressed assets in Europe

PUBLISHED : Wednesday, 14 January, 2015, 6:00am
UPDATED : Wednesday, 14 January, 2015, 6:00am

Siguler Guff, which last week finished raising US$877 million for its second distressed real estate fund, expects to invest about 40 per cent of the money in Europe, more than double the percentage in its first offering.

Real estate markets in Western Europe were three years behind the United States in their recovery, giving them more scope for gains, said James Corl, managing director and head of real estate at the New York-based private equity firm.

"We're very focused on Spain right now," said Corl, referring to plans for the Siguler Guff Distressed Real Estate Opportunities Fund II. "The deal flow is the most rapid and voluminous" following the 2012 creation of an entity, Sareb, to liquidate bad loans.

Siguler Guff is joining larger US private equity real estate firms in the hunt for European property as banks sell troubled loans. The company is looking for smaller deals excluding auctions, seeking higher returns. Europe is claiming a large share of attention from distressed-property investors globally because prices in the US have rebounded faster.

The new Siguler Guff vehicle invested in other funds and made direct investments with operating partners, putting in an average of US$12 million to US$15 million of equity per deal, said Corl, the former chief investment officer of Cohen & Steers. It is the largest US fund raised for real estate fund-of-fund investing.

We're very focused on Spain right now. The deal flow is the most rapid and voluminous [since 2012]
James Corl, Siguler Guff managing director

The fund started making deals as it won capital commitments starting in August 2013, and was about 70 per cent invested, Corl said.

In Spain, the firm was investing in warehouses, offices and for-sale and rental apartments in the largest cities, both through delinquent loans and foreclosed assets, Corl said. One recent deal was a portfolio of non-performing loans made with partner Rialto Capital Management, a unit of Miami-based homebuilder Lennar Corp.

Siguler Guff's European partners in the new fund include Meyer Bergman, a London-based owner of retail properties across the continent, including the Burlington Arcade in London's posh Mayfair neighbourhood.

The firm's first distressed fund, which raised US$630 million in 2010, invested with more than 12 managers, Corl said. Besides Rialto, they include hedge fund Paulson & Co's real estate group, Atlanta-based warehouse specialist Weeks Robinson Properties and Florida-based Crocker Partners, which redevelops and manages office properties. With Crocker, Siguler Guff invested in the Miami Centre, a 34-storey tower, and the Prominence at Buckhead, an Atlanta office building.

Siguler Guff's first distressed real estate fund produced a net return of about 24 per cent in the year to March, according to a report prepared for the Contra Costa County Employees' Retirement System, an investor in the fund.