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[IMGCAP(1)]NEWPORT BEACH, CA-Turner Development Corp. plans to acquire distressed commercial real estate and pools of performing, sub-performing and non-performing loans in the West via its recently closed Turner Opportunity Fund I, according to Rusty Turner, president of Turner Development, the fund’s manager. Sean Sheward, chief investment officer for the fund, tells GlobeSt.com that it is the first fully discretionary fund for Turner, a 30-year-old firm that until now has capitalized all of its investments and developments on a project-by-project basis.

[IMGCAP(2)]The company declined to say how much in total it expects to invest via the new fund, but it says its targeted asset size is between $3 million and $30 million for properties located in California, Arizona and Nevada. Sheward says that when the fund was initially set in motion about a year ago, Turner anticipated that the most immediate opportunities would be to buy distressed properties that owners would be motivated to sell at a discount as their loans neared maturity.

Now, however, Turner believes the near-term opportunities lie in acquiring distressed debt because it will be some time before the opportunities to acquire discounted properties will materialize. Sheward says that the new Turner fund is going to be “focused very hard on the FDIC pipeline” of distressed loans.

Sheward explains that the focus on the FDIC is related to the two primary components of the distressed loan market. One of these is healthy banks that are trying to sell their bad assets; the other is distressed loans that the FDIC has acquired from failed banks.

The FDIC is a more motivated seller than the healthy banks right now, Sheward explains, so Turner sees more opportunities there. In the case of the distressed debt being marketed by healthy banks, the spread between bid and ask prices is so wide that few such deals are closing, he adds.

In cases where it buys properties, the Turner fund will target the main property types that the company has traditionally focused on: industrial, low-rise office and medical office. In the case of distressed debt, the fund will have to be more flexible, Sheward says, because loan pools often include a variety of property types as the underlying collateral. He says that in cases like those, the fund might keep the loans on the office and industrial properties but sell off those that are secured by other property types.

Turner will try to work with borrowers to resolve the loans it buys, according to Sheward, who says that the solution might be for the borrower to pay off the loan at a discount, or for Turner to modify the loan and remain a lender and possibly sell the loan later. He notes that in the event that the fund can’t resolve a loan and takes title to a property via foreclosure, Turner’s development background provides the expertise to see a project through to completion. The firm has acquired or developed more than 5.5 million square feet of buildings and completed more than 270 acres of land development throughout Southern California, most recently its one-million square-foot Turner Riverwalk mixed-use business park in Riverside.

Rusty Turner says that his firm has been able to raise the capital for its new fund despite today’s uncertain economic climate because of the firm’s solid relationships with its investors. Sheward notes that the investors in the new fund are all high-net-worth individuals, many if not most of whom have invested with Turner in the past.

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