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How Canyon Partners deployed 60% of its just-closed debt fund

With the pandemic opening up secondary opportunities, the Los Angeles-based firm went on a performing loan buying spree for its $650m strategy.

Los Angeles-based private equity firm Canyon Partners held a final close on its second real estate debt fund, Canyon Laurel Fund II, on $585 million, affiliate title PERE has learned.

Including sidecar co-investments, the opportunistic fund surpassed its $650 million target.

Canyon Partners Real Estate, the firm’s real estate subsidiary, has deployed more than 60 percent of the capital raised. More than half of it has gone toward the acquisition of performing notes from sellers disrupted by the pandemic last year. The remainder has gone to construction and transitional loans originated by Canyon in recent months, a source familiar with the fund tells PERE.

On the secondary acquisition front, Canyon bought a $314 million portfolio in October that included six senior mortgage loans secured by multifamily, student housing, self-storage and senior living properties. The loans in the portfolio all had floating-rates with three- to five-year terms, according to a release from the firm. The underlying assets were in California, Colorado, Rhode Island, Texas and Tennessee.

Canyon’s co-head of real estate investment Robin Potts said the portfolio acquisition was the first time the firm saw significant opportunities to buy mortgages. In a November statement, she said more than $6 billion of such loans were put up for sale as lenders were forced to quickly adjust their balance sheets.

Prior to launching its commingled fund series for the strategy, the firm invested in real estate debt through one-off vehicles and separately managed accounts, PERE understands. Canyon has closed more than $2 billion of secondary market note acquisitions over the past 25 years. However, Canyon Laurel Fund I, which closed on more than $450 million – $530 million including co-investments – in 2016, was used exclusively to originate loans.

Roughly 70 percent of the capital committed to CLF II came from investors in the prior fund. Two-thirds of the commitments came from the US with the remainder coming primarily from the Asia-Pacific region. The investor base includes public and corporate pensions, endowments, financial institutions and family offices in the US, Japan, Korea and Australia.