The U.S. subprime mortgage crisis nearly ground the global financial system to a halt and forced the American property market into a prolonged downturn. With green shoots cropping up in the U.S. and overseas, however, private equity investment dollars are returning to real estate in force (we noted this in an article several months ago).
Witness, for example, the recent upswing in PE deals involving mortgage servicers or originators. Wilbur Ross’ WL Ross & Co. – a PE firm with more than $8 billion under management – last year bought Deutsche Bank’s loan-origination arm. Fortress Investment Group, which manages more than $40 billion, not only took a servicing firm public this month but is in talks to buy part of Ally Financial’s Residential Capital division. And Cerberus Capital is angling to buy another of Ally’s mortgage units, Buyouts magazine reported at the end of March.
It’s not just large PE players that are making moves in the real estate industry. Bloomberg Markets magazine described in a March piece how Waypoint Real Estate Group, a PE fund with $150 million under management, is targeting distressed properties across California. Waypoint buys as many as five homes a day, with the goal of converting them into rentals.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
The fund is tapping into a widely held belief in the PE industry: that renting is poised to become more popular. “We think there’s a growing demand for rental properties,” WL Ross vice chairman Jim Lockhart told Buyouts last month.
And PE firms aren’t confining their real estate investments to the U.S. A New York-based fund, GTIS Partners, operates an $810 million fund focused on the Brazilian real estate industry; it aims to capitalize on the rapid growth of Brazil’s economy.
“You will get more than what you put into Brazilian real estate,” GTIS president Tom Shapiro enthused to Forbes magazine in March.
Brazil isn’t the only emerging market that’s pulling in PE dollars. India’s property sector, too, is attracting the attention of the industry: More PE capital went to real estate than to any other industry in India in February 2012, business newspaper Mint says.
As property markets in the developed world enjoy a gradual recovery (and as select foreign countries continue to post strong GDP growth), investing in both properties and real estate financing firms should remain red-hot. It’s a trend worth watching in 2012 – particularly because the PE sector has so much dry powder to burn.
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