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New Canyon Capital JV Fund to Invest Up to $100M in California Retail

A successful JV of LA-based retail developer Paragon Commercial Group and Canyon Catalyst Fund (CCF) has led to a second retail investment fund, which will provide $60M to $100M of additional capital to acquire and upgrade neighborhood retail assets throughout California. We caught up with Paragon principal Jim Dillavou yesterday to hear more about the new venture.

New Canyon Capital JV Fund to Invest Up to $100M in California Retail

Jim tells Bisnow that CCF is intended to cultivate institutional real estate investment managers while Canyon Partners Real Estate is primarily charged with maintaining oversight of fund investments. He explains CCF is a discretionary separate account managed by Canyon Partners on behalf of CalPERS, which facilitates $750M in investments through the identification of real estate managers with niche strategies, a demonstrated track record and strong potential to access unique investment opportunities.

New Canyon Capital JV Fund to Invest Up to $100M in California Retail

In working with CalPERS capital, Jim tells us the firm is primarily investing in daily-trip-driven retail with value-add opportunities in urban markets. This typically means grocery-anchored centers, but with continuing changes in the retail landscape, he says it could include centers anchored by other categories of retailers that drive daily trips to that center, such as large-format retailers with a grocery component and pharmacy like CVS. The plan for Rancho Las Palmas shopping center (pictured), which is under construction in Rancho Mirage, has several retailers that attract local residents regularly.

New Canyon Capital JV Fund to Invest Up to $100M in California Retail

Jim says the firm is looking for well-located older assets in need of updating, functionally obsolete centers in need of complete repositioning (before picture of Rancho Las Palmas center), or centers where major tenants are “changing prototypes and may need their space demised or resized."

New Canyon Capital JV Fund to Invest Up to $100M in California Retail

Paragon is currently renovating and repositioning the grocery-anchored Rancho Las Palmas shopping center (rendering of Stein Mart tenant space at Rancho Las Palmas center), which was acquired as part of the first CCF. “This is very heavy value-add repositioning,” Jim tells us. He notes construction involves a complete redesign of the site plan, removal of old structures, construction of new buildings, a new access point to increase traffic flow, new facades, new site amenities and new landscaping, as well as upgrading existing tenant suites and construction of new tenant suites. The center, which was 40% occupied when it was purchased in 2014, is now 90% leased.

New Canyon Capital JV Fund to Invest Up to $100M in California Retail

Jim notes that with the successful investment of the first CCF, the JV continues to believe that selective investment into high-quality retail real estate will continue to produce “outsized returns” for its investors. Paragon recently opened an office in Palo Alto, which will be headed by the new director of investments in Northern California, Patrick McGaughey. "The opening of this office ensures that we are thoroughly evaluating all retail investment opportunities throughout the state," Jim says.