Farallon and Blackston Hedge Funds Total Domination!

NORFOLK, Va. - Nov. 27, 2013 - PRLog -- Hedge fund firm Farallon Capital Management LLC is raising a new real estate fund of about $350 million to $400 million, the first time Farallon has set up a separate fund exclusively for the asset class, according to two sources familiar with the situation.

Farallon is pitching the fund to its existing investors and is targeting a 20 percent internal rate of return, said one of the sources, who was not authorized to speak publicly.

The fund will have a three-year investment period from closing and will last a total of eight years, although that could be extended to 10 years.

Using about 60 percent leverage and setting aside money for reserves, the fund would have buying power of slightly less than $1 billion, the source said.

San Francisco-based Farallon, which manages more than $20 billion in assets for institutional and high net worth clients, did not respond to an email seeking comment.

Farallon has invested in real estate before through its other funds. It partnered with Simon Property Group Inc (SPG.N) in 2007 to buy mall owner Mills Properties and sold its stake to Simon last year.

But as was the case with many other firms that invested in real estate, the credit crisis took its toll. In 2010, Farallon restructured $1.53 billion in debt on one troubled investment - trailer park American Residential Communities LLC.

By creating a separate real estate fund, the vehicle allows investors to target money to the illiquid asset class.

Several other hedge fund firms have launched vehicles with longer lock-ups and reduced liquidity to boost returns.

John Paulson's hedge fund firm Paulson & Co, for example, raised a Real Estate Recovery fund to take advantage of cheap land prices in some of the country's most depressed housing markets that required investors to lock-up money for 10 years.

And Andrew Feldstein's hedge fund BlueMountain Capital raised a $1.4 billion fund last year to target less-liquid debt investments and which has a five-year lock-up for investors.

With its new fund, Farallon will target shopping centers, office buildings, warehouses and apartments that fundamentally have nothing wrong with them, but might be over-leveraged or mismanaged. It will target deals that require the Farallon fund to invest between $25 million to $50 million, the source said.

The fund will not invest in land or hotels, the source said.

Although the fund will be dedicated primarily to real estate in the United States, it will be able to invest some capital outside the country.

Blackstone Buying 100 million dollars of foreclosures every week:

Speaking of housing, we’re supposed to forget about the fact that the banks committed the largest consumer fraud in history and then paid the meager penalties for it with other people’s money, because we’re in a housing “recovery” now. Let’s forget the past, and look forward, and check out this housing boom, ay?

It’s tiring to have to keep explaining this, but the housing “recovery” comes from two factors. One, banks have intentionally kept a lot of their inventory off the market. A LOT. Millions of homes. This, combined with the underwater homeowner catch-22 of not being able to list their home when they owe more on the mortgage than it’s worth, has led to artificially constrained supply. Then, on the demand side, institutional investors are scooping up homes in distressed sales and short sales, usually for cash, which has propped up sales. So artificially low supply and investor-led demand means higher prices. It’s really simple.

And if you don’t believe me that this is taking place, here’s another reminder:

Investors buying foreclosed U.S. homes might have less than two years to accumulate properties as competition and rising prices shrink the pool of cheap assets, according to Blackstone Group LP (BX), the largest buyer.

“Prices are starting to move faster,” said Jonathan Gray, global head of real estate for Blackstone, which has invested about $1.5 billion this year in foreclosed homes. “That’s one of the risks that emerge as more people like us get into the space and as individual homeowner confidence grows. Frankly, buying a home today is pretty compelling.” [...]

Blackstone, the world’s largest private-equity firm, has spent about $1.5 billion on 10,000 foreclosed properties in the U.S. this year, making it the biggest buyer of single-family homes in the country, Gray said. Blackstone has been buying $100 million of houses a week, Stephen Schwarzman, chairman of the New York-based firm, said during an Oct. 18 earnings call.

The investors have all started competing with each other, and suddenly the attractive option of purchasing homes on the cheap and eventually selling them has become less attractive. This is especially true if one firm is buying $100 million in homes EVERY WEEK.

The idea here is to rent out the single-family units until they appreciate enough in value to sell. Also, they may try to securitize the steady stream of rental revenue to lock in the profits. I’ve discussed repeatedly why this may be a pretty terrible idea. But everyone’s so happy to see rising home prices that they just pop the champagne corks.

A couple months ago we heard about a $1 billion Blackstone investment just in foreclosed homes in Tampa Bay, so none of this is surprising. But it gives you a sense of the scale here. And remember, this is just one firm.

http://www.cashhomesva.com