AMERICAS NEWS: Western advance

It should come as no surprise that Advanced Capital would want to target the US when it comes to investing its debut real estate fund of funds, the AC Global Real Estate Opportunity Fund.

In the wake of the credit crunch, most investors are hungrily eyeing US real estate as some of the best investment opportunities in decades. Seth Lieberman, chief investment officer of Advanced Capital's real estate operations, said: “We expect the US is going to see some fanastically great opportunities and we believe it will be a time where fortunes are once again made.”

Residential land is just one area where Advanced has already seen a correction in the markets, bringing with it a plethora of opportunities. And in order to take advantage of the opportunities it sees, Milan-based Advanced has hired California State Teachers' Retirement System (CalSTRS) portfolio manager Bryan Bailey as a senior adviser to its real estate fund.

Bailey was also portfolio manager at neighbouring pension the California Public Employees' Retirement System (CalPERS) between 1987 and 2005, with responsibility for the fund's residential land development and homebuilding portfolio, as well as the multifamily and urban infill strategies.

“Bryan will be working with us on a significant part-time basis to target mid-market funds that are positioned to capitalise on property and property debt investment opportunities in the US,” said Lieberman.

The AC Global Real Estate Opportunity Fund, which expects to hold a first close this summer, will roughly split its capital between the US and Western Europe, targeting distressed debt and equity funds in the “mid-market” sector, rather than with “big name operators”. Leiberman said fund managers focused on this area were often better able to underwrite investments by targeting single asset deals with easier access to financing. In Western Europe, Lieberman said Advanced Capital perceived London to be one of the most attractive opportunities.

Debt though is expected to be a primary focus for the firm in the US, with Lieberman – a former managing director of UBS' real estate finance team who spent almost half his career in North America – stressing there was now no “natural home” able to provide the amount of capital needed by real estate investors in the US.

With an estimated $1.5 trillion of commercial real estate debt due to mature between 2009 and 2013 – including $105 billion of CMBS due in 2009 and 2010 alone – Lieberman says the scale of the opportunity in the US is “huge. I think the opportunity is about to open up in the US. People are just getting positioned for what lies ahead.”

The appointment of Bailey marks Advanced Capital's foray into US real estate, although the private equity funds of funds has previously made North American corporate investments. Lieberman admitted it had been “extremely difficult to invest” in funds over the past two years, but added: “That has now been completely turned on its head.”

Bailey joins former Merrill Lynch managing director and head of European property and hotels John Herbert as adviser to the AC Global Real Estate Opportunity Fund. The 10-year vehicle is expected to invest in up to 20 funds, targeting IRRs in excess of 20 percent.