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If All Else Fails, There’s Still Private Equity

Posted January 6, 2010 by Matthew Denton

Developers have found their saving grace.

There’s no white flag up this time…  Developers have found their saving grace in the person of private equity managers who still believe there are plenty of markets to take advantage of. BusinessWeek recently featured how real estate developers are clinging on the investment of firms waiting to pour in their money to projects that they believe are less risky.

The report states, “Smelling opportunity, private equity managers raised at least $12 billion in 2009 for development projects and other residential real estate deals, according to an analysis by Bloomberg BusinessWeek . And some older funds are just putting their money to work. Last year Hovnanian Enterprises, the seventh-largest U.S. homebuilder by revenue, announced joint ventures with two New York private equity firms in which the investors put up 80% or more of the money. GoldenTree Asset Management joined Hovnanian for 11 projects around Chicago and Palm Beach, Fla.; Angelo Gordon & Co. signed on for other Florida deals. ‘For every [private equity firm] that we’re doing business with, there are 10 more that we’re talking to,” Ara K. Hovnanian, the builder’s CEO, told an industry conference in November.’”

There’s nothing that surprises the industry with this move among the developers. There’s hot money getting in the hands of developers every now and then but in periods of recession, this issue is magnified due to the fact that raising capital for real estate purchases takes longer. Private money can always bring the real restate cycle turning once again even in the midst of riskier deals.

In this moment, there are a lot of reasons for private equity firms to pick up where the real estate bubble has left. They’re buying land on a plethora of market strategies like investing in distressed loans, mezzanine debt and even recapitalization. After all, who says real estate investing is out?

Only pessimists think so but not these market vultures. They’ll be always hungry for more.

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