I reviewed a very interesting article regarding the capital injection of private equity into US Real Estate firms/assets. The article mainly revolves around the concept that private equity firms can come into a company/asset, recapitalize the deal, and re-structure not only a large portion of the debt but likewise absorb a huge chunk of the equity during the process. A perfect example is the re-emergence of General Growth Properties from the brink of near extinction with the help of Brookfield Properties and various other firms. The graph below dissects the amount of capital raising that took place in late 2007-2008 in preparation for the distressed assets that would come to market in the coming years (2008 and onwards). It will be interesting to see how (and if) these distressed assets start turning over when a large chunk of commercial debt comes due in 2013. A quote from Steve Coyle of Global Realty Partners explains the opportunistic approach to recapitalization, “Sometimes they’re partnering with both the out-of-money equity holder and the lender at the same time, in effect being the white knight, bridging the gap and bringing the new capital to bring the asset to market…the new capital source is in control in most cases. That is the new paradigm for distress.”
Please click on the link below for the article:
Private Equity’s New Role in US Real Estate
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