JPMorgan Asset Management (JPMAM) is taking on the challenge of selling distressed real estate by launching a small fund for institutional investors.
J.P. Morgan Global Asset Management Real Estate Assets has launched Junius Real Estate Partners, which will, in part, purchase distressed debt left over from the housing bubble burst in 2008, an event that nearly caused the U.S. financial markets to collapse.
JPMAM is betting that the new fund will do well because it will act as a boutique, even though it is wholly owned by JPMorgan, and will only have seven or eight employees. The employees will have a direct stake in the new subsidiary.
Joseph Azelby, New York-based managing director and head of the global real assets group told reporters that the new subsidiary will have “a huge competitive advantage” because of its small size and independence. He added that it will act independently -- since its employees will have a sizeable stake in it -- but will still have the backing and resources of JPMorgan at its disposal.
“We think we have a unique model. We're building a highly focused and dedicated boutique that's backed by the resources of a platform that is very well known and, we think, highly respected in the marketplace,” Azelby told reporters.
The new unit will begin operations in the next year-and-a-half, he said.
JPMorgan is marketing the firm as a new, small shop that is free from the negative image that has smeared investment banks since the housing bubble burst. However, Azelby said there are tremendous opportunities to produce high returns.
He noted that there is about $84 billion in distressed real estate today, including foreclosed properties and defaulted commercial-mortgage-backed securities. He added that he expects to see even more distressed debt assets coming over the next several years.
It will, however, be a tough sell, he admitted.
Institutional investors already have cut back on investing in real estate as they saw the value of investments plummet since the housing bubble burst.
Additionally, JPMorgan is battling its own image problems, especially in the real estate market.
The creation of the new fund is ironic, as critics say that JPMorgan, along with along with Bank of America (NYSE: BAC) and other financial institutions, are the very reasons why so much real estate in the U.S. has distressed status right now.
The firm, along with Bank of America, is in the midst of several lawsuits from homeowners and small businesses over their “questionable” real estate lending practices during the height of the housing boom.