NEW YORK (Reuters) – Lone Star Funds, the U.S. private equity manager that pushed deeper into distressed real estate as the credit crunch took hold in 2008, is raising another $20 billion for troubled assets, according to sources.
Half of the new cash will be earmarked for commercial real estate, including commercial mortgage-backed securities, said a source briefed on the funds on Tuesday. The other portion will invest in financial institutions and other distressed assets, including residential mortgages and corporate debt, the source said.
Dallas-based Lone Star declined to comment on the funds, which were first reported by trade publication Commercial Mortgage Alert on Friday.
Investors are speculating that many mortgage assets have been pummeled to the point where they offer double-digit returns, even if delinquencies on residential and commercial properties continue to rise.
In another sign of increased distressed plays, Marathon Asset Management this month announced it is launching a portfolio aimed at soaking up a variety of assets weighing down Wall Street investment banks.
But banks and other investors that must re-value holdings to market levels have been slow or unable to participate much as lower prices have decimated their capital.
Signs of a deepening U.S. recession have also steered investors away from commercial real estate, which typically lags downturns in residential assets.
Lone Star last year raised $10 billion in two funds, and it purchased $30.6 billion in collateralized debt obligations from Merrill Lynch & Co. for just $6.7 billion, or about 22 cents on the dollar.
The company’s 2008 acquisitions also included a $9.3 billion subprime mortgage portfolio from CIT Group Inc (CIT.N) for $1.5 billion in cash and assumption of $4.4 billion of liabilities, and some operating assets of a mortgage unit of failed investment bank Bear Stearns.
In 2007, it bought subprime lender Accredited Home Lenders Holding Co. for $296 million.
By Al Yoon
(Additional reporting by Walden Siew; Editing by Leslie Adler)