Opportunity funds ramp up capital raising for distressed debt play

Managers of opportunistic real estate funds have significantly ramped up their capital raising activities this year. New research by New York-based investment manager Clerestory Capital shows opportunistic funds are seeking a total of $76 bn (EUR 57 bn) globally to profit from distressed deals coming onto the market.

Joanne Douvas, co-founder and managing principal at Clerestory said: 'The funds currently in the market are predominately focused on the US, which reflects the level of distressed loan resolution activity in this market compared with Europe. Larger funds are also returning to the market as investment periods are expiring and the opportunities are scaling up in size. We also see many new smaller funds, especially ones with more differentiated investment strategies.'

The Clerestory research found that, by the end of the first-half of 2011, there were 116 real estate opportunity funds in the market globally seeking to raise just over $76 bn of capital. Of these, 58 were seeking around $32 bn to invest in the US, comprised of 11 large cap funds and 47 small cap funds.

This compares with a total of 94 funds seeking to raise about $60 bn for opportunistic strategies in the fourth quarter of 2010.

Clerestory defines SC-Opportunistic funds as those seeking to raise less than $1 bn of equity and LC-Opportunistic funds as those seeking to raise more than $1 bn of equity commitments.

The increase is primarily due to the rise in new capital being sought by large-cap funds this year. The bigger funds made-up just over half of the capital being sought in 2011 at about $41 bn, with small-caps at around $35 bn.

Tommy Brown, co-founder and managing principal at Clerestory said: 'Generally speaking, real estate in mature investment markets globally needs to be recapitalized. Transactional activity in the US has been steadily increasing since the fall of 2009, as has capital formation. The continued volatility in the capital markets along with the economic uncertainty - especially in certain parts of Europe - is expected to further accelerate the transition of broken capital structures back towards a more functioning market place.'