Private equity firms are ramping up funds to buy commercial loans in foreclosure (Photo by: Jeffrey Greenberg/Universal Images Group via Getty Images)
Universal Images Group via Getty Images
The U.S economy is booming. The unemployment rate is at a historic low level. There’s little inflation. And investment capital is fueling a wave of commercial development throughout South Florida.
Yet, the founder of a Miami-based private equity firm is doubling his initial target goal of $100 million for a fund dedicated to acquiring distressed commercial real estate loans. Ralph Serrano, principal of Safe Harbor Equity said a recently completed fundraising tour through Europe and Asia convinced him there’s strong appetite among high net worth individuals and institutional investors abroad to put their capital in a distressed commercial real estate debt fund.
“What I gathered is that they are looking to position capital in the safety the U.S. real estate market affords investors,” Serrano said. “We haven’t raised the initial $100 million yet, but we are part of the way there. With the responses we’ve seen, we are scaling it up to $200 million.”
While a recession doesn’t seem likely in the near future, there are some indicators that now is the right time to set up distressed loan fund, Serrano said. “There has been a slight uptick in foreclosures statistically,” he said. “They are bit higher than they were 12 months ago. It is a good time to raise capital and be ready for anything that may present itself.”
Foreclosure starts in Florida were up 23% last month, the fourth highest among all 50 states, according to Attom Data Solutions’ May 2019 monthly foreclosure report. In Miami-Dade County, foreclosure starts inched up 9.1% year-to-year, rose 18.7% in Broward County and jumped 33.9% in Palm Beach County. “In May 2019 we did see an uptick in the number of states increasing in foreclosure starts going from 17 to 23 states rising annually,” Todd Teta, chief product officer at ATTOM Data Solutions, said. “And again Florida is bucking the national trend with a continuous annual increase.”
Among recent foreclosure actions involving South Florida commercial properties is the Design Center of the Americas in Dania Beach. Wells Fargo, acting as a trustee of GE Commercial Mortgage Corp., sued owner Cohen Brothers Realty Corp. on June 4. The lawsuit alleges the owners are delinquent on two loans worth $172.9 million. The loans are secured by the 782,986-square-foot showroom and event space.
Last month, Madison Realty Capital filed a foreclosure lawsuit against the developer of the Costa Hollywood Beach Resort. The 326-unit condo-hotel at 777 North Ocean Drive in Hollywood opened last October. Madison is claiming $40.6 million of delinquent debt on a $70 million construction loan issued in 2016. And in March, the lender for the Midtown Doral condominium and retail complex filed a $11 million foreclosure lawsuit.
Serrano said he he is already speaking to lenders seeking to unload delinquent loans. “I was approached by a lender on a condo transaction that is a $45 million transaction,” he said. “There is always a market for distressed loans, regardless if there is a recession or there isn’t. We began this business in 2005, well in advance of the 2008 crisis.”
Other private equity firms looking to capitalize on a potential rise on distressed loans include New York City-based Churchill Real Estate Holdings and London-based Cheyne Capital. In April, Churchill launched a $200 million distressed debt fund targeting failed condo projects and struggling retail properties valued under $100 million. Cheyne recently raised $1.1 billion for a fund that will buy the debt of stressed middle-market companies from European banks seeking to sell down loan portfolios in order to meet new accounting and regulatory standards.
