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  • July 2018
  • Teaching Note
  • HBS Case Collection

The Perfect Storm: What Happens When the Market Moves Four Standard Deviations?

By: Nori Gerardo Lietz and Sayiddah Fatima McCree
  • Format:Print
  • | Language:English
  • | Pages:11
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Abstract

Adam Carter was the portfolio manager for Tate Modern Finance III, L.P. (“Tate” or the “Fund”), the third in a series of U.S. commercial real estate debt funds sponsored by the London-based Tate Partners. The Fund was capitalized with $700 million of equity commitments, including a $50 million Sponsor commitment. The Fund’s objective was to acquire income-producing commercial real estate mortgages at conservative attachment points in the capital structure, leverage these investments modestly, and generate mid-teen, net returns. The return objectives were consistent with prior funds and represented an alternative means of investing in commercial U.S. real estate equity that was felt to be overvalued at the time (2006). In theory, a debt strategy would provide more protection, and be more conservative, than an equity-oriented strategy due to the multiple layers of debt and equity subordination that insulated the Fund’s investments.

Keywords

CMBS; CLO; Repo Financing; Real Estate; Financial Strategy; Investment Funds; Financing and Loans

Citation

Lietz, Nori Gerardo, and Sayiddah Fatima McCree. "The Perfect Storm: What Happens When the Market Moves Four Standard Deviations?" Harvard Business School Teaching Note 219-006, July 2018.
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About The Author

Nori Gerardo Lietz

Finance
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