16.10.09

By James Whitmore

Investment bank leviathan ready to spend $6.3bn — and says UK is good value

Goldman Sachs has amassed $6.3bn of equity to invest in real estate worldwide, which will include a return to the UK real estate investment market for the first time in five years.

The US investment bank, which yesterday was expected to reveal huge third-quarter profits, has the equity — the most it has ever had — committed in four new funds, Property Week has learnt.

The funds, which were closed at the onset of the credit crunch and are managed by the bank’s Real Estate Principal Investment Area (REPIA), target different markets. One buys in developing markets, another is low geared and buys in the US, another provides mezzanine debt and the fourth is the latest in the series of Whitehall Street opportunistic funds.

Each was closed with more than $2bn of equity, of which Goldman Sachs itself typically contributes up to 35%, making them four of the largest funds raised by REPIA since the first in 1991.

Ed Siskind, who last month took sole control of REPIA, told Property Week he believes the UK offers good value once again. REPIA’s funds were active in the UK until 2004, typically carrying out one large deal each year. In 1998 the REPIA team helped to set up property outsourcing company Trillium, then it took Westminster Healthcare private, bought a portfolio of Woolworths stores with London & Regional, took Queens Moat Hotels private and provided mezzanine debt to the Morgan Stanley-led consortium to buy Canary Wharf Group.

This year the Whitehall Street International Real Estate Limited Partnership 2008, which closed in May 2008 with $2.3bn of equity, including $900m from Goldman Sachs, has completed two purchases of non-performing loans in Japan and Italy.

“We are back to what we made our name doing when we started,” Siskind said.

Last month it agreed to buy a portfolio in Italy of 875 primarily non-performing and subperforming residential mortgages with a book value of €120m. The loans were originated in 2006 and 2007.

The loans will be managed and serviced by Archon Group, which was set up by Goldman Sachs in 1996 and manages $52bn of assets, including loans, in North America, Asia and Europe.

REPIA’s strategy will be either to agree a sale of the loans for a higher price than it has paid or to foreclose on the owner and seize the assets.

“We’ve prepared ourselves through Archon and the senior management changes to partner with financial institutions to buy struggling assets,” said Siskind.

The likely success of REPIA’s four new funds, given the timing of their spending at the bottom of global real estate markets, will compensate for the losses incurred by Whitehall Street Global Real Estate Limited Partnership 2007, which invested its $4.8bn of equity, including $2bn from Goldman Sachs, just before the real estate markets collapsed.

Source: Property Week (www.propertyweek.co.uk)