Abu Dhabi’s Billions Enter the Private Credit Craze - BloombergAbu Dhabi, the self-styled “capital of capital,” is now entering US commercial real estate’s hottest space post-regional banking crisis: private credit
Bigwig Emirati sovereign fund Mubadala completed a $3 billion takeover in May of Fortress Investment Group. To anyone in US commercial real estate (CRE), Fortress is a household –
and much-feared – name in debt investing, flexing in marquee deals such as Stuyvesant Town (Fortress subsidiary
CWCapital managed the middle-class housing bastion for bondholders after Tishman Speyer’s operatic CMBS default), resurrecting the long-stalled supertall tower at 125 Greenwich Street, and even bankrolling investor
Harry Macklowe’s ill-fated EOP skyscraper deal.
The Mubadala takeover
needed Treasury approval to go through. But now that it
has it, Fortress is upsizing its bets. And it has a $300 billion war chest to do it.
“For us to compete with larger firms like Ares, Apollo and Sixth Street, we need to continue to grow assets, because if we don’t then we’ll be less relevant,” Co-CEO Drew McKnight
told Bloomberg this summer (Forget turtles – it’s AUM all the way down).
Much of that firepower is focused on the US regional-banking crisis, which was set off by last year’s collapse of Silicon Valley Bank and quickly infected old-boy lenders that were once darlings of the real estate industry, including
Signature Bank and New York Community Bank (NYCB).
The crisis is one that Joshua Pack, Fortress’s other co-CEO,
has termed a “trillion-dollar opportunity,” saying in February that the “underlying stress here is just so big that they [regulators] will eventually get to a point where they’re just going to have to utilize private capital to clean up the mess and recapitalize the system.”
Pack’s prediction came true almost instantly: in March,
a Steve Mnuchin-led syndicate mounted a $1 billion rescue capital infusion into NYCB, and this summer Fortress
splashed out $115 million for a 25% stake in First Foundation, a struggling Texas lender with significant exposure to rent-regulated California multifamily properties. Along with BlackRock and Citadel Securities, Fortress is also a
founding investor in the new Texas Stock Exchange.
But
Mubadala’s private-credit appetite doesn’t end there. It’s already a backer of Blue Owl, which has a stake in private credit firm HPS Investment Partners – this space, as you’ve probably gathered by now, is fairly interconnected.
And all of these private-credit machinations are playing out as part of a larger financial game of thobes between Abu Dhabi (
$1.7 trillion AUM) and its neighboring frenemy, Saudi Arabia ($1.1 trillion AUM), who share a growing desire to diversify away from petrodollars.
Foreign CRE is a big part of that mandate, though equity bets on individual trophy buildings have often gone sideways; Consider Abu Dhabi’s 2008 purchase of a 90% stake in the Chrysler Building at an $800 million valuation; a decade later, it sold the Art Deco icon for just
$150 million. Even worse was a deal that was both a financial and reputational black eye: the 2013
purchase of a stake in Manhattan’s Park Lane Hotel from now-fugitive Malaysian financier Jho Low.
Abu Dhabi’s strategy now seems to be
more jockey than horse-focused: it launched a $1 billion industrial real estate joint venture with Dallas-based Crow Holdings in 2021, and through its new infrastructure vehicle,
MGX, is partnering with BlackRock and Microsoft on a $30 billion AI fund to build data centers and energy projects. The Saudis have already placed their chips on Blackstone when it comes to that red-hot sector, making a
$20 billion anchor investment in 2017 into the money manager’s infrastructure fund, which has since amassed a
gargantuan data-center portfolio.
All told, Abu Dhabi plans to spend billions on its private credit project, meaning yet another flood of money is entering the space.
