USAA Partners with Crimson to Acquire $1B in Distressed Properties

By Barbra Murray, Contributing Editor

The already heated competition for distressed real estate just got hotter. USAA Real Estate Co. and Crimson Real Estate Fund L.P. have joined the fray with the creation of a new alliance to invest as much as $1 billion in distressed real estate in a variety of property sectors and locations across the country.

The fund will pursue office, multi-family, resort and mixed-use properties in prime growth markets, with a special focus on areas where the partners currently have a strong presence. However, it will enter new territory, as well. “We haven’t been in California in the last 10 years, so we’ll go back there, and we’re fairly focused on moving into Seattle and maybe Portland,” Dean Patrinely, chairman & co-managing principal of fund sponsor Crimson Real Estate Advisors L.P., told CPE.

A host of new funds and other investment vehicles have popped up, ready to pounce on troubled assets. Yet many in the real estate industry question whether there is enough product up for sale to go around, given that the number of properties hitting the market from the country’s vast pool of distressed real estate remains low. “Thus far, surprisingly few properties have come to market; for those that have, competition among prospective buyers has been fierce,” global accounting and consulting firm Deloitte reported in its March Perspectives on Real Estate report. “Fortunes were lost in the past couple of years; many industry watchers think there could be fortunes made in the next couple, and are acting accordingly.”

Crimson, however, is not at all skeptical about the availability of opportunities for the fund. “We’ve seen a very meaningful shift in deal flows since the first of the year. More product is coming to the market, and by the end of this year there will be a significant surge in deal flow,” Patrinely said. Additionally, he believes the fund has a leg up on other investors. “Because of our execution capabilities, we’ll have a much broader pool of assets to choose from. We will consider repositionings, redevelopments, leasing risks and overall turnarounds.” And these investments will be made via a range of transaction structures, including direct acquisitions, joint ventures and preferred-equity investments in existing ventures. “There are a lot of different ways we’ll approach it.”

The target acquisition period for the fund is three years, although it has the ability to extend to four.