Investcorp plans $500m US property debt fund

Bahrain- and London-listed investment house Investcorp plans to set up a fund worth up to $500m to invest in US real estate-related debt, its managing director said on Thursday.

Investcorp's Managing Director Khalid Al Rumaihi told Reuters the company is seeking between $250m and $500m for the fund that will buy into US real estate debt paper trading at a discount due to the financial crisis.

"We're not looking for completely distressed papers, we can go as low as 50 cents to the dollar, depending on the quality of the paper," he said.

He said financial institutions are unloading asset-backed securities from their balance sheets, offering bargains, but he added that Investcorp would only buy papers backed by properties it would be prepared to own.

The fund will also provide mezzanine financing to investors seeking to buy into the US property market.

"Mezzanine debt will be very attractive to real estate developers, with the scarcity of funding they will need to have access to other forms of finance," Al Rumaihi said.

Mezzanine is a hybrid form of financing between debt and equity that gives the lender the right to convert underlying assets into equity if the borrower defaults.

Investcorp in September launched a $1bn fund to invest in whole loans, mezzanine loans and commercial mortgage-backed securities collateralised by real estate assets in the United States.

An unidentified sovereign wealth fund committed $850m to the fund.

Between 15-20 percent of that fund has been deployed, Al Rumaihi said.

Investcorp, which has some $13 billion under management, posted its first-ever net loss of $511 million for the six months to Dec. 31, as its hedge fund investments and portfolio companies were hit by the financial crisis.

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