June's Distressed News Roundup

Investcorp Commits to Real Estate Debt

Investcorp's U.S.-based real estate arm received commitments to invest in U.S. commercial real estate debt from several large institutions, including Akard Street Partners, an investment partnership operated by Hunt Realty Investments, Inc. with substantial funding from the Teacher Retirement System of Texas, as well from a significant U.K.-based pension scheme. In keeping with its commitment to co-investment, Investcorp will be investing alongside these institutions.

TriLyn Investment Management LLC, a commercial real estate debt specialist and long-standing partner of Investcorp, will serve as a sub-advisor and will assist in identifying investments. In this capacity, TriLyn will be part of the investment team and will provide access to its wide network of industry contacts with respect to sourcing potential investments.

"The ability to attract world-class institutions in what continues to be a very challenging environment is a testament to the extraordinary efforts of our real estate group, as well as Investcorp's reputation in the real estate debt markets," Investcorp Real Estate Head Jon Dracos said in a statement. "Expanding our investor base is the next step in the growth of the Investcorp real estate platform."

The Investcorp/TriLyn team will actively target income-producing commercial and multi-family residential properties in major markets throughout the United States, with a focus on acquiring or originating senior mortgage loans, subordinated debt (B notes), mezzanine debt, and bridge loans secured directly or indirectly by commercial real estate.

Capmark Sells $911M Loan Portfolio

Capmark Financial Group Inc. announced that two of its subsidiaries have closed the previously announced agreements to sell a portfolio of commercial mortgage loans. The aggregate principal balance of the two portfolios is approximately $911 million. Approximately 97 percent of the aggregate portfolio is owned by Capmark Bank and the remainder is owned by Capmark Finance LLC.

Gaia, Starwood Capital Acquire Multifamily Portfolio via Chapter 11 Bankruptcy Auction

Gaia Real Estate and a controlled affiliate of Starwood Capital Group agreed to invest $22.5 million of new equity to acquire and recapitalize PJ Finance Co., which filed for Chapter 11 bankruptcy protection in March 2011 and reemerged as a going concern on May 11, 2012.

More than 45 percent of units are located in Dallas, with additional concentrations in Phoenix (19 percent), Atlanta (8 percent), Houston (8 percent), Fort Lauderdale, Fla. (7 percent), Corpus Christi, Texas (6 percent), Nashville (5 percent), and Orlando (3 percent).

The portfolio was originally acquired in 2001 and recapitalized with more than $540 million of securitized debt financing in 2006, at a valuation of $580 million. During the downturn the portfolio struggled under its heavy debt load and occupancy suffered as capital was unavailable to turnover units for new tenants. At one point, more than 1,700 units were taken offline and occupancy troughed at 72 percent in markets that enjoyed substantially (90 percent+) lower vacancies.

In March 2011, PJ Finance filed for Chapter 11 bankruptcy protection. As part of the recapitalization agreement, the debt has been restructured into three tiers; first tier in the amount of $423 million, second tier in the amount of $52 million, and third tier in the amount of $28 million. Interest only shall be payable on the first tier during the term of the loan, with no interest payable on the second and third Tier. The loan matures in 2020. While in Chapter 11, $14 million was re-invested into the portfolio, and current occupancy has dramatically improved to more than 90 percent as nearly 1,000 units were brought back online.

Gaia and Starwood will invest their capital as part of the restructuring to recapitalize the company and continue the stabilization of the portfolio. The new equity will earn a 16 percent preferred return and all principal and interest will be senior to the loan's principal. The capital will be used primarily for deferred maintenance, capital improvements and renovation work.

Over the next eight years, Starwood and Gaia plan to implement a $45 million capital improvement plan. Gaia and Starwood have engaged Pinnacle Company, one of the largest property management companies in the United States to manage the portfolio and assist in executing the improvement plan.

HFF Closes Sale of $96.2M Loan Portfolio

HFF closed on the sale of a $96.2 million commercial loan portfolio on behalf of a major life insurance company.

The portfolio consisted of 28 sub- and non-performing loans secured by retail, office, self-storage and industrial properties in addition to loans on a parking garage and land parcel. The properties are located in secondary and tertiary markets in 14 states, and the average loan size was approximately $3.5 million. Three of the loans were sold separately prior to the marketing of the remaining 25 loans.

Although the seller’s preference was to sell the remaining portfolio to one or a very limited number of investors, HFF provided investors with a menu approach−that is, they were given the opportunity to bid on the entire portfolio, any group of loans or individual loans. More than 40 offers were procured; 10 of which were for the entire portfolio. The 25-loan portfolio was sold in its entirety to a single distressed debt fund. The sale was closed approximately two weeks after the deal was awarded.

This sale followed two earlier portfolio sales, aggregating approximately $89.1 million, on behalf of the same seller. The portfolios consisted of 20 higher-risk performing, sub-performing and non-performing loans on retail, self-storage, office and industrial properties in addition to a loan on an ice-skating rink. The average loan size on these portfolios was slightly larger at approximately $4.5 million. HFF again provided investors with a menu approach to bidding. In contrast to the previously mentioned sale, however, five of the 20 loans were sold separately and the remaining loans were divided between one distressed debt fund and a life insurance company. Sales for these portfolios were executed in a timely manner as well.

The HFF team representing the seller was led by senior managing director Stuart Salins.

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