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Investcorp is one of the many companies that have launched investment funds — in this case, a $1 billion capital pool — to target debt paper, which is viewed as one of the best opportunities for real estate funds at the moment. It has also recently brought on board industry Christopher Hoeffel as managing director, responsible for the company’s debt investment activities. Before he joined Investcorp., Hoeffel was a managing director of JP Morgan Chase, following its acquisition of Bear Stearns. Before that, he was the global co-head of the Commercial Mortgage Department at Bear Stearns. He also is the current president of the Commercial Mortgage Securities Association and a member of the Real Estate Roundtable and a member of the Real Estate Finance Committee of the Real Estate Board of New York. Who better suited, in other words, to discuss the possible impact of the recent government actions on debt paper investment.

GlobeSt.com: Your thoughts on the events of the last week or so, such as the Troubled Asset Relief Program and the $250 billion partial banking privatization?

Hoeffel: It is important that we don’t have a scatter-shot approach. We can’t just fix one element of the financial market – there has to be a comprehensive strategy in place. So from that perspective we are hopeful that the programs the government has announced will restore liquidity to the market. Banks need to lend not only to real estate investors and developers, but also to businesses; there will not be a recovery in the real estate capital markets until there is a broader recovery in the financial system.

GlobeSt.com: Do you think TARP is going to affect the investment environment for opportunity funds that have set up in anticipation of buying discounted or distressed loans?

Hoeffel: There is still a lot we don’t know about TARP so that is difficult to say. I can tell you that we won’t see any movement in the market until there is some stability in credit spreads. Right now they are fluctuating wildly – no one wants to buy a bond if they think it will be worthless tomorrow. But I want to emphasize that what we [Investcorp] have is a broadly defined mandate focused on the acquisition of commercial real estate debt. People have been talking about distressed debt opportunities, but that is not what we are doing. Debt is being repriced and that is what we are taking advantage of – not the credit market troubles. This strategy was set up a year ago and remains unchanged despite recent events.

GlobeSt.com: But if the government is competing for these assets in reverse auctions, won’t that realign debt pricing? Even if the asset in question is not eligible for the government repurchase plan, won’t there be upward pressure on prices for other debt paper?

Hoeffel: No, for a number of reasons. There are a lot of financial institutions and hedge funds that are holding assets and are under pressure to sell. Many have been forced to take marks against assets to provide meaningful indictors on where they should price things. They are being forced to liquidity. That has affected pricing for all of the structured finance products. Across the board, everything we are looking at now is priced more attractively than it was six months ago.

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