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 Although his attempt to turnaround Tribune Co. blew up, distressed investor Sam Zell is ready to dive back in to the type of investing that made him rich with a new $625 million private equity fund. The new investment vehicle, Zell Credit Opportunities Fund LP, will target distressed securities in debt markets as well as loans backed by commercial real estate, Bloomberg found in an August private-placement notice. The limited partners backing the new fund were not identified. The fund is likely to target overleveraged companies in dire need of debt relief and commercial real estate properties, a sector where the picture looks bleaker by the day. In fact, Zell and other distressed investors are gearing up for what is expected to be a bonanza of bank foreclosures and loan sales in that area. As real estate values have fallen from 2007's sky-high prices, distressed investors have begun turning to buying up the debt on the properties as they expect much of the equity to have been wiped out. Also out raising distressed funds to capitalize on the recessionary pressures are office landlord Vornado Realty Trust (NYSE:VNO), with a $1 billion target, and real estate mogul Barry Sternlicht with Starwood Property Trust Inc., which filed to go public in a $500 million IPO that will bankroll commercial real estate investments. In July, a Realpoint Research report said that June delinquencies in commercial mortgage-backed securities rose an "astounding" 585% to a 12-month high of nearly $29 billion. Other assessments of the commercial real estate market were even more alarming. In July, Real Capital Analytics found 5,315 troubled commercial properties nationally, valued at more than $108 billion; and in June, Real Estate Econometrics LLC predicted that the default rate on commercial real estate is likely to reach 4.1% by year's end. That projection would imply defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of such loans held by U.S. banks in the first quarter, according to data in the report. - George White
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