Buck raising fund to invest in troubled loans
(Crain's) — Looking to take advantage of the troubled market for commercial
real estate mortgages, John Buck Co. is raising a $150-million fund to
invest in distressed debt.
The first contributions by investors, totaling roughly $75 million, are
expected to be made later this month, according to sources familiar with the
fund. John Buck, chairman and CEO of Chicago-based Buck, did not return a
call late Tuesday requesting comment.
JBC Debt Fund I L.P., which was formed June 19, according to Delaware
corporate records, joins a crowded field. More than 55 real estate
distressed-debt funds have been announced recently, but only a fraction have
been successful reaching their fundraising targets,
says Bruce Cohen, chairman and CEO of real estate investment firm Wrightwood
Capital LLC.
Buck has a strong record for raising money and making deals, Mr. Cohen
notes, but "virtually every market participant says they've never seen such
a tough market for raising funds."
The new fund comes after many Wall Street investment banks have begun
selling off at a discount the riskiest portions of their massive loan
portfolios, sometimes called mezzanine loans. But the market for those loans
remains relatively obscure, despite the publicity surrounding the deep
freeze in commercial mortgage-backed securities.
The fund isn't Buck's first endeavor in the distressed-debt arena.
Earlier this year, the company bought a $100-million mezzanine loan on six
office properties owned by New York-based Broadway Real Estate Partners LLC.
The loan was originally part of a $2.6-billion loan package issued by New
York investment bank Lehman Brothers and Connecticut-based RBS Greenwich
Capital, according to a March 28 story in Commercial Mortgage Alert, an
industry newsletter.
Amid tighter lending requirements, achieving top returns on equity
investments has become harder. Increasing the size of a loan on an
investment, called leverage, boosts the return on a percentage basis.
But banks now widely insist that borrowers invest more equity in deals,
which gives the lenders more protection but lowers expected returns.
By acquiring a mezzanine loan at a
bargain — in some cases nearly 50 cents on $1 — some investors are betting
they can achieve returns as much as 5 percentage points higher than the
equity investor might expect in the very same deal.
Better known as a developer, Buck in recent years has become an established
real estate investment firm. The firm last year raised its third equity
fund, totaling $290 million, with a goal of achieving annualized returns
between 14% and 18% over a four- to six-year period.
The debt fund's goal is to achieve similar returns.
