Bloomberg News

TPG Is Seeking Property Returns ‘Where REITs Aren’t,’ Davis Says

October 27, 2011

Oct. 27 (Bloomberg) -- TPG Capital is seeking to increase real estate returns by investing in such assets as U.S. homebuilders, undeveloped land and troubled mortgages, said Kelvin Davis, a partner at the private-equity firm.

Prices for top-tier offices, hotels and malls have been bid up by real estate investment trusts, reducing yields on those properties. TPG, based in Fort Worth, Texas, has turned instead to such distressed assets as non-performing commercial and residential loans, Davis said today during a panel discussion at an Urban Land Institute conference in Los Angeles.

“Capital going to safe havens present opportunities for those with long-term thinking,” he said. “There are capital needs that are being unmet today. Go where the REITs aren’t.”

U.S. commercial property deals have slowed amid concern over the slow-growing economy and reduced debt financing. A total of $49.8 billion of commercial real estate changed hands in the three months ended Sept. 30, down from $58.5 billion in the second quarter, according to Real Capital Analytics Inc.

TPG in July bought homebuilder Taylor Morrison and earlier this year acquired California developer Catellus Corp. -- both examples of out-of-favor assets -- in a bet they will outperform other real estate assets, Davis said. TPG, founded in 1992 by David Bonderman and James Coulter, has $48 billion of assets under management.

“This is a good time to take advantage of dislocation” in real estate and financial markets, he said.

The U.S. still may be hurt by the European debt crisis even with a $1.4 trillion rescue for Greece, Davis said. The “interconnectivity” of global finance increases uncertainty about risks to U.S. banks from the euro zone’s sovereign debt turmoil, he said.

Like Lehman Collapse

The situation in Europe is akin to the period before Lehman Brothers Holdings Inc. fell in September 2008, according to Joseph Azrack, head of real estate at New York-based Apollo Global Management LLC. Lehman’s bankruptcy deepened the biggest U.S. financial crisis since the Great Depression and led to government bailouts of banks and an 18-month recession.

Some confidence in the U.S. system was restored after the Federal Reserve and Treasury Department stabilized banks by forcing them to recapitalize, Azrack said yesterday during a ULI panel discussion. Those crucial early steps haven’t occurred in Europe, he said.

--With assistance from David M. Levitt in New York and Hui-yong Yu in Seattle. Editors: Daniel Taub, Kara Wetzel

APO US

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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