By John Gittelsohn
Private real estate investment firm Cottonwood Group closed a $1 billion fund for special situations, including properties needing financial restructuring, new development or other potentially high-yielding opportunities.
The fund has already invested about $300 million, mostly through loans that have options to acquire title to properties in the event of a default, according to Cottonwood. The vehicle, which targeted $500 million, had an initial close in 2023 and has generated an internal rate of return of 20% so far.
There’s $2 trillion of maturing commercial real estate debt that will need to be refinanced through 2027, including $591 billion of potentially troubled loans, as borrowing costs have soared and property values have plummeted since interest rate hikes in 2022, according to data from Newmark Group Inc.
“We’re two years into a high-rate environment and there’s a lot of stress and distress out there,” Alexander Shing, Cottonwood’s founder and chief executive officer, said in an interview. “We see this as a once-in-a-decade opportunity.”
The Cottonwood Real Estate Special Situations Strategy fund has already invested in a residential tower at 262 Fifth Ave. in Manhattan, a mixed-use development in Austin and a redevelopment site that currently hosts the Viper Room, a storied night club in West Hollywood, California.
Cottonwood is also currently in negotiations over a $240 million construction loan it extended for the St. Regis Residences in Boston in 2023.
Investors in the vehicle include an affiliate of Taiwan-based Fubon Financial Holding Co., Korea Investment Holdings, and the North Atlantic States Carpenters Benefit Funds. The latest commitments were made to the primary vehicle and separately managed accounts.
Los Angeles-based Cottonwood manages about $1.5 billion of assets in funds and a total of $2.65 billion including separately managed accounts and other vehicles, and has transacted and advised on about $7 billion of deals since its formation in 2012.