Deer Park Road Management Co, a hedge fund firm known for its profitable bets on distressed assets, is ramping up its investment in commercial real estate debt, positioning itself to benefit from a downturn reminiscent of 2009, according to a report by Bloomberg.
The report cites Scott Burg, Chief Investment Officer of Deer Park, as confirming that the firm has launched its first dedicated commercial mortgage fund, Commercial Mortgage Opportunities I, which aims to raise up to $500m, and will focus on acquiring debt tied to office buildings at significantly discounted prices.
The launch comes as the commercial real estate market grapples with a prolonged period of elevated interest rates, which has led to sharp declines in property valuations and a surge in defaults. With lenders eager to offload some of their more valuable assets to strengthen their cash positions and mitigate further losses, Deer Park sees a compelling entry point.
“The amount of distress in the office sector has created a massive opportunity, with commercial mortgage-backed securities (CMBS) trading at deep discounts,” said Burg in an interview. “Most players are offloading their exposure to office real estate indiscriminately, which is why we’re stepping in to capitalise on this dislocation.”
Founded in 2003 by Michael Craig-Scheckman, one of the earliest employees at Izzy Englander’s Millennium Management, Deer Park currently manages over $3 billion in assets. The firm made a name for itself by profiting from discounted mortgage and asset-backed securities during the aftermath of the 2008 financial crisis. Now, nearly 15 years later, Deer Park is seeking to replicate that success.
The Steamboat Springs, Colorado-based firm is targeting investors from the Middle East and Europe, as well as multi-strategy hedge funds, to participate in its latest endeavour.
“Valuations have plummeted by as much as 60%-80% from the original loan amounts in some cases,” Burg noted. “We’ve been patient as prices fell, but we believe the conditions are right to get back in.”