UPDATED, July 16, 9:17 a.m.: Bain Capital, which is raising a new $3 billion debt fund, is teaming up with Manhattan-based SKW Funding to target $500 million in troubled real estate debt.
The new partnership will target distressed and non-performing loans across the country with a focus on the greater New York City area, SKW Funding principal Ayush Kapahi told The Real Deal.
“In this environment, it’s just faulty business plans,” that will drive acquisitions, Kapahi said, citing asset classes such as retail or high-end condos that are facing oversupply.
Recent changes to New York state’s rent-stabilization laws could also create opportunities, he added.
This is the first distressed debt joint venture for SKW. Kapahi co-founded the company in 2014 with Jerry Swartz, one of his partners at the commercial brokerage HKS Advisors and the Wrublin family’s Dalan Management. The Bain-SKW joint venture recently closed its first acquisition: a $27 million portfolio of four non-performing notes backed by a 652-unit multifamily portfolio in San Antonio, Texas.
Bain Capital, meanwhile, is reportedly raising a $3 billion special-situations fund. It closed a $3.1 billion fund in 2016.
Jeff Robinson, head of Bain’s global distressed and special situations group, said that one-off borrower-driven distressed situations and “signs of late-cycle lender fatigue” indicate there will be more opportunities to acquire non-performing loans.
And while it may appear to be a prime time for distressed acquisitions, investors have been hesitant to put their money into new vehicles.
Fundraising for distressed-debt funds totaled just $2.5 billion for the year as of late May, according to Preqin. That’s on track to fall short of the $23 billion raised last year, and far below the record $45 billion raised at the height of the last distressed-debt fundraising cycle in 2008.
Tom Carr, head of Preqins’ private debt group, said one reason for the lackluster fundraising could be that investors see other sectors like direct lending could offer better opportunities.
“But it may also be simply a case of capital buildup,” he noted when Preqin released its report in May.
Churchill Real Estate was reportedly raising a $200 million distressed funding targeting New York real estate earlier this year.
Since 2013, assets held by distressed funds grew by 19 percent, but dry powder targeting those kinds of investments swelled by 82 percent.
“Investors may be waiting for managers to put some of their $87 billion in dry powder to work before committing further capital,” he said.
Correction: A previous version of this article called the $500 million in distressed debt that Bain Capital and SKW are targeting a fund. It is a joint venture. Separately, Bain is raising a $3 billion fund, not $3.5 billion.