European Real Estate Attracts Siguler Guff in New FundHui-yong Yu
Siguler Guff & Co., which last week finished raising $877 million for its second distressed real estate fund, expects to invest about 40 percent of the money in Europe, more than double the percentage in its first offering.
Real estate markets in Western Europe are three years behind the U.S. 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. The company plans to announce the completion of its Siguler Guff Distressed Real Estate Opportunities Fund II today.
“We’re very focused on Spain right now,” Corl said in a telephone interview. “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 U.S. private-equity real estate firms in the hunt for European real estate as banks sell troubled loans. The company is looking for smaller deals outside of auctions, seeking higher returns. Europe is claiming a large share of attention from distressed-property investors globally because prices in the U.S. have rebounded faster.
The new Siguler Guff vehicle invests in other funds and makes direct investments with operating partners, putting in an average of $12 million to $15 million of equity per transaction, said Corl, the former chief investment officer of Cohen & Steers Inc. It’s the largest ever U.S. fund raised for real estate fund-of-fund investing, according to data compiled by Bloomberg.
The fund started making deals as it won capital commitments starting in August 2013, and is about 70 percent invested, Corl said.
In Spain, the firm is 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 nonperforming loans made with partner Rialto Capital Management LLC, 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 neighborhood.
The firm’s first distressed fund, which raised $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 Boca Raton, Florida-based Crocker Partners LLC, which redevelops and manages office properties. With Crocker, Siguler Guff invested in the Miami Center, a 34-story downtown 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 percent in the year ended March 31, according to a Sept. 8 report prepared for the Contra Costa County Employees’ Retirement System, an investor in the fund. That was about 7 percentage points higher than the net return of the benchmark, which is the NCREIF Property Index plus 5 percentage points.
Corl, 48, joined closely held Siguler Guff in 2009 to build a real estate group and take advantage of opportunities to buy assets at discounts amid the financial crisis. The firm, which has about $10 billion in total assets, pursued a hybrid structure for real estate that allows for direct investments as well as investing in other managers’ funds, giving investors access to a wider range of deal and lower fees.
Corl has demonstrated astute timing in his career. He left Cohen & Steers, the New York-based specialist in publicly traded real estate investment trusts, in January 2008, close to the market’s top. He sold his shares in REITs and assessed his next move.
Corl last May joined the board of Equity Commonwealth, formerly known as Commonwealth REIT, an office landlord whose management was overthrown after pressure from activist investors. Siguler Guff has a stake in the REIT through its investment in a Related Cos. vehicle that holds an interest in the new company.
A majority of the new Siguler Guff fund will be invested in the U.S., where there will continue to be opportunities over the next few years tied to real estate deals done near the market’s 2007 peak, Corl said. The firm is active in areas including soured loans, recapitalizations and suburban office properties.
With prices for some high-quality properties in major markets back at record levels, “the opportunities are becoming increasingly selective,” said Corl.