Oct. 31 (Bloomberg) -- Guggenheim Structured Real Estate Advisors LLC, the manager of commercial-mortgage funds set up five years ago by Ed Shugrue, asked investors in its second fund for about $300 million of new equity to meet margin calls and reduce debt, a person with knowledge of the firm's fund-raising said.

Shugrue went to the Oregon Investment Council on Oct. 29 to ask for $100 million to supplement Guggenheim Structured Real Estate II, a $770 million fund raised in 2006. The Oregon council, which invests the state's $54 billion Public Employees Retirement Fund, approved the additional investment ``subject to a few caveats,'' said Ronald Schmitz, Oregon's chief investment officer.

Slumping commercial-property debt prices are threatening more companies and funds after contributing to Lehman Brothers Holdings Inc.'s record bankruptcy. Funds that borrowed money to own loans and bonds must sell devalued assets or raise equity to meet banks' demands.

``We are in the midst of a galactic de-leveraging of the entire system,'' John Klopp, chief executive officer of commercial- mortgage investor Capital Trust Inc., said on an Oct. 29 conference call. ``The result of that will be that many, many assets, including commercial real-estate assets, will end up being owned by somebody other than who owns them right now.''

Shugrue declined to comment. Before starting Guggenheim Partner LLC's Structured Real Estate unit, he was chief financial officer at Capital Trust, whose chairman is billionaire real estate investor Sam Zell.

`Looking Ahead'

The Guggenheim fund, whose lenders include JPMorgan Chase & Co., Credit Suisse Group AG and Citigroup Inc., needs to raise cash by the end of November, according to the person, who asked not to be named because discussions were private.

``I don't think that the banks have made any formal margin calls,'' said Oregon's Schmitz. ``But the general partner -- and other limited partners -- are looking ahead and wish to de-lever and would prefer to do so with more equity capital rather than sell assets in a bad market environment. The underlying assets are solid. This is just a protection against a potentially bad technical situation.''

Oregon, which already has $100 million in Guggenheim's Fund II, attached conditions to its new investment. ``We did require a minimum of asset sales and/or fundraising,'' Schmitz said. He declined to specify the amount.

Annex Funds

Investors who commit money to so-called annex funds typically aren't charged management fees on the new pledges and can keep more of the profits.

Bruce Corwin, a spokesman for Credit Suisse, Brian Marchiony, a spokesman for JPMorgan Chase, and Stephen Cohen, a spokesman for Citigroup, declined to comment.

The Guggenheim fund was originally leveraged with $2.2 billion of repurchase agreements and collateralized debt obligations, the person said.

Guggenheim Structured Real Estate, a unit of securities firm Guggenheim Partners LLC that was started in 2003, has made $8 billion of investments and also issued CDOs, according to its Web site. Guggenheim Partners was founded by the wealthy New York family whose philanthropic work includes the Guggenheim Museums in New York and Bilbao, Spain.

Calpers Investment

Fund II investors include the California Public Employees' Retirement System, the largest U.S. public pension fund. Calpers invested $107.2 million, Clark McKinley, a spokesman for the pension fund, wrote in an e-mail. The fund offered a one-year year return before fees of 14.7 percent as of March 2007, around the time the market peaked, according to the latest data available from Calpers.

McKinley said Calpers doesn't ``comment on ongoing transactions involving real estate partners.''

Yields on commercial mortgage bonds with the lowest investment- grade ratings rose to 30.5 percentage points over U.S. Treasuries this week, according to Morgan Stanley. The spread has climbed more than 20 percentage points this year amid forced sales, a weakening economy and a credit crunch that's driving down property prices and making refinancing harder for owners of office buildings, apartments and stores.

Other debt funds have also sought lifelines amid the credit crisis sparked by defaults in the subprime-home mortgage market. BlackRock Inc., the biggest publicly traded U.S. asset manager, earlier this month asked investors including Oregon in its $3 billion BlackRock Credit Investors Fund for an emergency infusion of additional cash.

``This isn't unlike BlackRock,'' said Schmitz in reference to the Guggenheim situation. ``They are de-levering a bit.''

American Mortgage Loss

American Mortgage Acceptance Co., a New York-based commercial mortgage investor, said this week that it lost $6.3 million selling commercial-mortgage bonds and a foreclosed property to repay lenders and probably will have to unload more assets.

Other debt buyers have been forced to close. Highland Capital Management LP moved this month to shut its flagship Highland Crusader Fund and another hedge fund after losses on leveraged loans and other debt. Leveraged, or non-investment-grade, loans are rated below Baa3 by Moody's Investors Service and BBB- by Standard &Poor's.

Shares of American Mortgage, Capital Trust and IStar Financial Corp., another publicly traded New York-based commercial-mortgage buyer structured as a real estate investment trust, have each fallen more than 75 percent over the past 12 months. Trading in American Mortgage was halted this week after the company said its common shares may be ``worthless.''

Before its Sept. 15 collapse, New York-based Lehman Brothers said it planned to spin off $25 billion to $30 billion of commercial mortgage assets into a new publicly traded firm to staunch the drain on its capital from their declining prices.

To contact the reporters on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: October 31, 2008 16:16 EDT