JP Morgan Chase & Co. have cut short efforts to raise $750 million real estate fund
Global financial services firm, JP Morgan Chase & Co. have recently announced stopping their attempts to develop a new $750 million real estate fund owing to less interest from investors than initially anticipated.
The company created a purpose-built unit for the development called Junius Real Estate Partners and their efforts were to enable them to participate in high return, yet high risk deals. JP Morgan still intends on investing some money into their Junius fund, which has made its first investment in a project with the Salamander Resort & Spa in Middleburg, Virginia.
Chief Executive of Salamander Hospitality, Sheila Johnson, is a partner in this deal, having established the entertainment network BET with her husband which was sold for $3 billion to Viacom following the couple’s split. The resort, which will open next year, will have an equestrian farm as well as 168 rooms and suites.
Although JP Morgan still intends on raising the $750 million at a later date, it was not an easy decision to make and puts a black mark on JP Morgan Asset Management’s on-going development, which manages roughly $55 billion of investments.
This halt on the plans also represents the difficulty many companies are facing in achieving its fund-raising aims in today’s economic climate, as companies are more fearful of any high-risk investment.
JP Morgan tried their best to make this project a success, having hired Investcorp International Inc.’s John Fraser, as well as others from Goldman Sachs Group Inc. and Starwood Capital Group, although figures from similar projects indicate that they are not the only ones struggling in their venture. Apollo Global Management also hasn’t quite managed to meet its target of $650 million, and many managers have taken the decision to reduce management fees to half of the industry standard in the hope of attracting large investors.
As one of the first real estate funds sponsored by the bank, Junius would have been in danger of further problems from the Volcker rude which dictates that banks may only put up to 3% into their own funds, and that large financial firms need to detach themselves from their proprietary-trading units.
Before this rule was in place, companies were able to invest 10-20% of capital into their funds, but JP Morgan is now only able to invest 3& into Junius. Partners, however, are able to invest a further 1-3% in the company.