Canyon Partners Launches Its Largest US Debt Fund to Date

Canyon Partners Real Estate has closed Canyon Laurel Fund II, a real estate debt vehicle with over $650M of assets across the fund and related co-investments.

Canyon Laurel Fund II is Canyon’s largest US real estate debt vehicle to date and is a significant increase from the $530 million predecessor fund, including related co-investments. Canyon’s direct real estate investment arm, which has doubled in size in the last few years, manages a real estate portfolio today of over $6 billion of project capitalization.

The new fund targets senior and subordinate debt investments across all major property types in the top US markets. Canyon has already deployed over 60% of the fund in primary originations and secondary market purchases.

Robin Potts, Canyon’s co-head of Real Estate, says around 70% of its predecessor fund investors re-upped into the Canyon Laurel Fund II. “The COVID-19 pandemic has created an even more compelling environment for real estate debt as lenders, owners, and developers have been faced with increasing liquidity needs, while Canyon’s positioning coming into the crisis allowed us to move quickly and capitalize on the growing opportunity set,” Potts said in a prepared statement.

Investors from the US, Japan, Korea, and Australia are in Canyon Laurel Fund II. In addition, public and corporate pensions, endowments, financial institutions and family offices have joined the fund.

Canyon joins a growing number of new debt funds hitting the market. As of early May, Berkadia recorded close to 130 different debt funds, according to Hilary Provinse, executive vice president and head of mortgage banking at the company. 

“Those are either private equity, debt fund vehicles or some operators who have raised funds where they’re investing either preferred equity or debt into different parts of the stack,” Provinse told GlobeSt.com. “So there’s just a ton of liquidity on the debt funds.”

Provinse is watching the underwriting standards of debt funds. “Although we are looking at aggressive going in and exit debt yields, I would say there still is generally pretty responsible underwriting,” she told GlobeSt.com.

In addition to expanding its debt platform, Canyon has been active in the equity space. In 2020 it announced a $375 million investment from CalPERS for its Emerging Manager program (which Canyon has managed since 2012). It also hit the hard cap in 2019 with a $500 million fundraise for a joint venture partnership with global infrastructure firm AECOM (AECOM-Canyon Partners). It closed Qualified Opportunity Zone equity investments for residential projects across over $500 million of project capitalization in the last two years.