The Real Deal Miami

Opportunity real estate funds now target riskier investments

May 08, 2013 04:00PM

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Barry Sternlicht
of Starwood

Opportunity real estate funds are increasingly testing out a new profit-making strategy, investing in riskier real estate — such as distressed properties or those with large vacancies — in the hopes of yielding larger returns, the Wall Street Journal reported.

During the downturn, private equity and pension funds generally invested in safe properties in healthy markets. But the increased demand for these assets has driven up prices, according to the Journal.

As a result, the funds need to “take more risk to get double-digit returns,” Bob Jacksha, the chief investment officer at the New Mexico Educational Retirement Board, told the Journal.

For example, KKR and TPG Capital are now raising their first real estate funds. Starwood Capital Group closed an over-$4 billion fund last month, which was ahead of its target of $2 billion to $3 billion. Brookfield Asset Management has now raised $2.8 billion for a targeted $3.5 billion opportunity fund. [WSJ]Zachary Kussin

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