D
eer Park Road Management is taking a closer look at distressed commercial debt. The Colorado-based hedge fund has launched a commercial mortgages fund focused on office-backed debt, aiming to raise up to $500 million from European and Middle Eastern investors. The Commercial Mortgage Opportunities I fund comes with an 8% hurdle rate, the minimum return required for investment.

    The company is betting that the current market conditions will lead to attractive returns. "We're seeing commercial mortgage-backed securities trade at deep discounts due to the volume of distress in the office space," said Scott Burg, Chief Investment Officer. Deer Park has a track record of success in this area, having invested in discounted mortgage- and asset-backed securities after the Great Recession.

    Investing in commercial debt today is likely a long-term play, as valuations sink and defaults rise following the pandemic and Federal Reserve rate hikes. Other firms, including Goldman Sachs and Cohen & Steers, have also raised funds to acquire struggling properties at a discount. According to MSCI, over $38 billion worth of office buildings are at risk of default or foreclosure, the highest level since 2012.

    Deer Park has more than $3 billion in assets under management and has invested in startups like BidMyListing, which enables real estate agents to compete for listings. The firm's experience and expertise in distressed debt make it a significant player in the market.