The Distressed Real Estate Opportunities Funds were formed to assemble portfolios of "best in class" manager relationships taking the form of fund investments, joint ventures or other forms of co-investment focusing on investments in real property interests. The portfolios consist primarily of debt and equity interests in commercial property, commercial mortgages and commercial mortgage-backed securities, and the debt and equity securities of real estate operating companies primarily in the U.S. and Europe. The Funds allocate up to 40% of committed capital to direct investment opportunities in similar situations. Siguler Guff pursues a value-added portfolio allocation strategy focused on targeted, timely opportunities during multi-year down cycles.
The real estate cycle is rhythmic, observable and predictable. Generally, the best time to acquire good quality commercial real estate is in the years following an economic recession, as the excesses of the prior cycle peak (e.g. overvaluation, excessive leverage and otherwise loose underwriting standards) are being unwound. These circumstances conspire to provide the opportunity to acquire premium quality commercial real estate assets at significant discounts to their intrinsic values. In particular, the most recent cycle was characterized not only by a broad cyclical decline in the value of real estate assets, but also by widespread distress at the manager level and a difficult environment for new capital formation. All of these factors provide an opportunity to invest at advantageous pricing.