Fortress on the edge

I30.01.09

How the mighty have fallen. According to Bloomberg, Fortress (ticker: FIG), which was the first hedge fund to IPO in the heydays of the credit bubble in the summer of 2007 is trying to raise $80 million to fund margin calls associated with its investment in Gagfah, a German residential property operator, as well as two other real estate investment funds, Eurocastle and Nationstar. Allegedly the margin calls have occurred at the Fortress Investment Fund III, a $2 billion real estate pool raised in 2004, however as Fortress (whose shares last traded at $1.34/share or a 93% drop from its IPO) has already called all the capital from Fund III, according to Bloomberg, it is likely that there is essentially no cash left anywhere in the organization for intercompany transfers.

Oregon Investment Council, which manages $60 billion, and already has a sizable stake with the manager, is considering whether or not to bail the firm out and on what terms. According to Fortress "$80 million will allow the fund to hold investments until prices rebound, potentially yielding a three to five times return on the new capital invested." Judging by how the CMBS market is acting these days, a promise of a "five times return" on any real estate fund, is definitely fit for a stand up comedy routine on late night TV.