Artemis Real Estate Partners, a national real estate investment firm, recently announced the successful closing of its fourth value-add fund, Artemis Fund IV, which garnered $2.2 billion in equity commitments, according to a recent report by the Commercial Observer. This, combined with the $1 billion raised by the firm’s Healthcare Fund II in June 2022 and a $500 million core credit platform, brings Artemis’s total available capital for distressed real estate opportunities to approximately $3 billion.
Anar Chudgar, Co-President of Artemis, shared that Fund IV surpassed the firm’s previous equity fundraising round, Fund III, by over $1 billion. She emphasized that Artemis was able to secure substantial support from a diverse range of institutional investors, including public and corporate pension funds, endowments, foundations, family offices, and, notably, two sovereign wealth funds from the Middle East and Asia, marking the first time for Artemis to engage with such entities.
Chudgar highlighted the firm’s advantageous position to take advantage of market volatility, leveraging its extensive track record of over 13 years, along with a national operating partner network and relationships, to pursue a diverse range of investments across different property types and capital structures. She emphasized that Artemis would only invest in asset classes where they possess confidence, visibility, and reliable revenue streams.
Rich Banjo and Michael Vu, co-portfolio managers of Fund IV, stated that the newly acquired capital would be directed towards selective opportunistic and value-add transactions. They believe that Fund IV will enable Artemis to collaborate with its national network of operating partners, identifying overlooked and distressed opportunities in the current market environment, particularly within the middle market segment.
Value-add investments, although typically not offering significant cash flow initially, present substantial potential returns once value has been added to the property through strategies like refurbishment or repositioning. Opportunistic investments carry the highest risk in the commercial real estate (CRE) investment space, requiring significant leverage but also offering substantial rewards. Ground-up developments, vacant properties, and land deals fall under this category.
Artemis’s successful fundraising round, amassing $2.2 billion, reflects the growing trend of institutional investor capital flowing into the nation’s expansive private equity network. In 2022 alone, Private Equity International estimated that 1,520 funds raised a staggering $727.3 billion. The private equity industry has witnessed this influx as a result of interest rate increases by the Federal Reserve and a reduction in bank lending following a regional banking crisis, which has led to liquidity constraints across the lending market and widespread distress across CRE asset classes.
Notable examples of the growing private equity trend include Blackstone’s BREP X, which closed a $30.4 billion fundraising round in mid-April, and Brookfield Asset Management’s flagship real estate fund, Brookfield Strategic Real Estate Partners IV, which raised $17 billion in late 2022.
With approximately $500 million in CRE loans maturing this year, sponsors are seeking new investment partners to provide mezzanine financing or preferred equity stakes in vulnerable capital stacks. These stacks have experienced asset price revaluations and increased risk adjustments on floating-rate loans. The elevated leverage ratios on existing loans have placed pressure on borrowers, sometimes making it challenging to maintain loan payments or refinance maturing loans without substantial equity injections. Private equity firms are poised to fill this void during a period of unprecedented distress.
Chudgar acknowledged that the current market presents significant and rapid dislocation, unlike any she has experienced during her 20-year investing career. The demand for commercial real estate debt far exceeds the available supply, creating a supply-and-demand imbalance in the commercial real estate landscape. Artemis is navigating this investment environment by capitalizing on favorable tailwinds in certain asset classes, building on its history of investing in niche asset classes since its establishment in 2009.
Artemis boasts a track record based on the acquisition of over $13 billion in gross debt and equity purchases across more than 300 investments. Since its inception, the firm has raised over $9 billion in capital. It was founded under the leadership of Co-CEOs Deborah Harmon and Penny Pritzker, who later served as the U.S. Commerce Secretary under President Barack Obama in 2013.
Artemis operates out of Washington, D.C., and maintains offices in New York, Los Angeles, and Atlanta.