Goldman Sachs to juice cash-strapped RE owners with $3B fund

The fund will invest in real estate funds and limited partnerships that need capital to “get to the other side of COVID”

A photo illustration of Goldman Sachs CEO David Solomon (Getty; iStock)
A photo illustration of Goldman Sachs CEO David Solomon (Getty; iStock)

Big money will be deployed into cash-deprived real estate funds that have been hit by the coronavirus pandemic.

Goldman Sachs announced it closed a $2.75 billion fund, known as Vintage Real Estate Partners II, vastly exceeding the investment firm’s $1.25 billion target. The fund will target the real estate secondaries market, such as limited partnerships and other real estate funds that need capital in order to stay afloat or make new deals.

The announcement comes at a time when many real estate owners have been impacted by the coronavirus and stay at home orders throughout the country. Retail and hotel property owners have been particularly hit hard by the pandemic and have left owners struggling to make debt payments.

Goldman Sachs managing directors Harold Hope and Sean Brenan said an area of focus is on real estate owners who need liquidity in order to weather the economic downturn.

“There are going to be some good properties that have some short-term struggles and they are going to need additional capital,” said Hope. “We partner with the owners of those properties… to allow them to get to the other side of COVID.”

The fund could also invest in real estate partnerships that are looking to buy new properties, but are struggling to get financing since banks and lenders hold off on making new loans due to uncertainty around pricing.

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“Some of the deals that are really attractive have to happen really quickly, if you need to do it quickly you need a lot of capital,” said Hope.

As of March, the fund has already made five investments, but 90 percent of the fund’s money has not been invested, according to Brenan. Goldman Sachs declined to disclose their investments.

Vintage Real Estate Partners II has an investor base of institutions and high net worth individuals and is the second real estate secondaries fund raised by the group. The team’s first real estate secondaries fund, Vintage Real Estate Partners, closed on about $900 million in capital commitments in November 2016. The group has been investing in real estate secondary transactions since 2010.

By investing in real estate funds, Hope and Brenan can see how property owners are faring during the crisis. Hope said, however, while there has yet to be the level of distress as in past crises.

“We are seeing some investors that are pretty distressed, but if we compare it to previous crises it doesn’t seem to be as widespread,” said Hope.

Large private equity firms and investment firms are ramping up their funds to invest in distressed real estate. Blackstone has said that it has already bought up $11 billion in the public equities market and liquid debt across the firm and said it has $152 billion in dry powder that it can invest, according to its most recent earnings call. Brookfield Asset Management said it will invest $5 billion in struggling retailers and Pacific Investment Management Corp announced it will raise $3 billion for a distressed fund.