AllianceBernstein (AB) has bolstered its commercial real estate debt and equity capabilities with the March 17 acquisition of CarVal Investors, a credit specialist based in Minneapolis, Minnesota with $14.3 billion in assets under management.
Matt Bass, head of private alternatives at Nashville-headquartered asset manager AB, tells Real Estate Capital USA that the deal fills gaps in its opportunistic and distressed credit capabilities, and will not change CarVal’s ongoing commercial real estate debt priorities, especially in the multifamily and hospitality sectors, which the firm has been drilling down on.
“We both operate in the commercial real estate debt markets, but we’re generally not running into each other,” Bass says. He adds that the opportunity for the duo include connecting teams to target like-minded investors, making introductions on new opportunities, or partnering on transactions, besides working together organically.
Lucas Detor, managing principal at CarVal, tells Real Estate Capital USA that the teaming up of AB and CarVal will open doors to a shared dealflow, and potential new and different solutions for the real estate market that CarVal could not have developed on its own.
“On integration: nothing changes,” Bass says. “It’s going to be the same team, the same investment process executing on what they’ve done well over the past 35 years and globally; we’re not making any changes.”
Detor says CarVal is maintaining its focus on the US debt space, especially with hospitality and multifamily opportunities. “Hospitality assets continue to be disrupted by the legacy effects of covid and other general market turmoil and rate movement,” Detor says. “They’re at the risky part of the capital stack today and we are seeing interesting opportunities as a result.”
AB, which has the $739 billion in AUM, is purchasing the entirety of CarVal for an upfront price of $750 million, with funding coming from financial services and insurance company Equitable’s ongoing $10 billion capital commitment to grow the Nashville manager’s private alternatives platform announced in 2020.
As part of the deal, $750 million will be spread across CarVal’s strategies with an initial focus on residential mortgage strategies, according to Bass. The transaction is set to close in the second quarter of 2022 and will see the Minneapolis credit outfit rebranded as AB CarVal Investors as a new independent subsidiary of AllianceBernstein.
CarVal brings to AB credit investing experience across corporate securities, loan portfolios, structured credit and hard assets. CarVal currently employs 190 professionals – including 68 investment professionals – across its offices in Minneapolis, London, Luxembourg, New York and Singapore.
Gregg Warren, sector strategist at financial services firm Morningstar, views the transaction as a boost for AB, especially with the baked-in long-term management retention and incentive programs alongside a multiyear earnout roadmap for reaching certain targets.
“We view this as a positive for AB as its expands its alternative products offerings, but it comes at a time when equity market losses – and potential bond market losses tied to the Russia-Ukraine conflict – are stressing its managed assets,” Warren said in his updated research note. “Over the long run, though, we expect this deal to add to AB’s ability to generate positive AUM growth on a more consistent basis.”
Paul Mullaney, managing director for CarVal’s North American real estate business, tells Real Estate Capital USA that the hospitality focus generally means the firm is looking at larger transactions at infill locations, typically opting for four- and five-star post-service properties to lend on across business and leisure hotels.
CarVal also has interest in industrial lending opportunities, but Mullaney notes that assets within the sector are priced aggressively for the firm’s taste, and capital is coincidingly cheap to come by.
Mullaney says CarVal would like to find some office opportunities with Class A assets in suburban or urban areas atop the existing transitional multifamily and hospitality priorities. “We’re happy to take on risk where there’s a large rollover of a tenant or there’s vacancy,” he says. “We think, at the end of the day, those buildings and those owners of those buildings will be victorious with regard to attracting tenants in the future.”
AB and CarVal first linked up about a year ago in the context of a strategic partnership in Asia, and Bass says the dialogue progressed organically over time as it became clear the two businesses were complementary and maintained no overlap.
Bass says that, for the better part of the past two years, AB has been looking to fill gaps in its platform to add or expand capabilities – such as its distressed and opportunistic credit, private asset-backed lending and clean energy – and develop geographic extensions into Asia, Latin America and Europe.
AB originally launched its European real estate debt business in November 2020 through a partnership with Lacarne Capital, and the CarVal deal represents the first inorganic move to similarly bolster the firm’s US real estate debt presence.