The owner of one of Georgia’s largest film and television production campuses is raising money to go after distress in more traditional sectors of commercial real estate.

Woodvale Commercial Real Estate has raised $75M of a targeted $100M fund to buy distressed hotels, warehouses and urban office buildings across the Southeast, Managing Partner Rahim Charania told Bisnow.

The fund, called Woodvale Opportunity Fund I, is the company's third, and it is raising capital from both institutions and high net worth investors, said Charania, who also founded Three Ring Studios.

The fund will embark on an aggressive buying campaign over the next six months, aiming to take advantage of the market dislocation caused by rising interest rates and lenders seeking to remove troubled loans from their books.

“Our evaluation of the market, with the upcoming loan maturities, constricted debt availability and high interest rates, is lenders and borrowers are going to have to face some tough decisions,” Charania said in an interview this week. “We identified properties that are underwater on their loans. We anticipate allocating the full capital in the next six months. We believe that is our window of opportunity.”

Charania said he believes that six months from now, major institutional funds with deeper pockets will raise their own distressed funds with the ability to pay more for assets and thus raise their values. When that happens, Charania said Woodvale would likely be priced out of the market for the basis the fund is seeking.

Woodvale is already under contract to purchase a portfolio of select-service hotels that would represent the new fund’s debut investment, Charania said. He didn't provide details on the portfolio.

“I think many [banks] have been kicking the can down the road for several months, but the can is getting heavier to kick,” he said.

Charania has one of the Atlanta commercial real estate industry’s more varied lists of investments. He started Woodvale with a $150M fund that established American Fueling Systems, a company that provides gas, diesel and natural gas to logistical companies and municipalities through five service centers in Georgia and Texas.

He then entered the film and television real estate space in 2018 when he broke ground on Cinelease Studios - Three Ring in Covington, a campus that initially involved six soundstages, paid for with $150M in capital raised in a second fund called Covington Media Holdings. In 2022, Woodvale broke ground on an eight-soundstage expansion of Three Ring.

Charania said the overall real estate market is in the early stages of distress, especially among hotels and industrial real estate, many of which have construction loans expiring and aren't bringing in enough revenue to cover the new cost of debt at inflated interest rates.

Distress is more widespread on the office side. There are 22 office buildings spanning 4M SF in Metro Atlanta that are troubled or potentially troubled backing a total of $390M in loans coming due that, in some cases, the landlords have ceased making payments on, according to data compiled by Avison Young.

Already, a number of prominent properties in Metro Atlanta have landed in foreclosure, including 3003 Perimeter Summit, which was sold on the courthouse steps this summer at half its original loan value; the 29-story Tower Place in Buckhead, which could be placed into receivership after Starwood Capital Group defaulted on its $213M loan in July; and Peachtree Center, the iconic six-tower Midtown complex that was taken over by a lender in a foreclosure motion last year.

Troubles are spreading beyond office in Atlanta as well, with lenders pursuing foreclosures on a prime Midtown parcel once slated for the condominium tower No2 Opus Place, the South Downtown portfolio owned by Newport RE, and an apartment complex in Sandy Springs.

Woodvale is looking to acquire distressed urban office buildings and convert them into housing. Charania said Woodvale has already identified some loans tied to urban offices he wants to go after, but he declined to elaborate.

“We need to find the best assets to really do the work. But in order for [conversion] to work, the assets have to be really discounted,” he said. “I would say office is the most discounted asset class in the market right now. We anticipate that our first offers will go out before the year is out.”

Charania said raising capital has been a challenge, even with a premise of buying distressed properties. He said for Woodvale's first two funds, he was able to raise the $150M targeted by each in a short time span, given the amount of liquidity on the sidelines wanting to invest in commercial real estate.

“We could measure them in weeks. Now we’re measuring investment raises in months,” Charania said. “It was definitely a longer time than normal.”

Woodvale Opportunity Fund I is not encountering the same insatiable investor demand; it has taken six months to raise $75M, he said.

Lisa Hurd, chief investment officer with the The Radco Cos., said slow fundraising is a new dynamic today, but it isn't at all unusual, especially with so many investors already tied up in previous commercial real estate deals. They are sitting and waiting to see what happens with those projects in today's market before betting more dollars into CRE, she said.

“Capital that used to be really readily available is now more challenging than it has been in the last 10 years,” Hurd said.