Colony to close debt fund on $1.2bn

Colony Capital is slated to hold a final close by the end of the month on its latest distressed debt fund, Colony Distressed Credit and Special Situations Fund (CDCF) III, which has hit its hard cap of $1.2bn in base capital commitments,  reports our sister publication, PERE.

The Los Angeles-based real estate investment firm, which saw its latest fund significantly oversubscribed, also raised  $600m of co-investment capital.

PERE understands that the fund, which had an original target of $1bn, is significantly oversubscribed, with Colony turning away some $400m in commitments.

Colony, led by chairman Thomas Barrack, launched CDCF III in July 2013 and had raised $491.74m as of this July, according to filings with the US Securities and Exchange Commission. The approximately 30 limited partners in the fund include the Florida State Board of Administration, which committed $150m; Fresno County Employees’ Retirement Association (FCERA), which earmarked $20m; and the Teacher Retirement System of Louisiana, which pledged $75m, according to documents from those pension plans. About 25% of the LPs, including Louisiana Teachers, were first-time investors with Colony.

The new vehicle will be much more heavily weighted to Western Europe than the prior funds in the series, with 40% of the fund targeting the region and 60% in the US. By comparison, CDCF II was 93% allocated to the US and just 7% to Western Europe.

Like its predecessor funds, CDCF III will invest in acquisitions of one-off loans or loan portfolios; new loan originations, typically mezzanine debt or preferred equity; and special situations, such as rescue capital and recapitalizations. Approximately 45% of the fund’s capital will go to loan acquisitions, 35% to originations and 20% to special situations, according to documents from FCERA.

Colony is seeking 15% gross returns and 11%t net returns for the new fund. To date, the firm has invested 45% of the capital in CDCF III in 16 transactions, with an additional four or five deals pending.

Completed deals include the acquisition of a portfolio of 415 loans from Freddie Mac in October 2013 at 57% of the unpaid balance of $199 million; and the origination of €129m and a €34m letter of credit in June to finance the public tender offer for Société de la Tour Eiffel, a French listed real estate company, which subsequently were repaid one month later. The fund, which is using 50% leverage, is said to be generating an 18% gross return on its investments to date.