Investment firm Bain Capital has been in business for more than four decades, but its real estate division is only seven years old.
Ryan Cotton, who has been with Bain for over 21 years and has led its real estate division since 2023, said it sought to bring Bain’s “consultant-style, value-add ownership model” to the commercial real estate sector.
Bain Capital Real Estate has grown quickly, raising billions of dollars through three funds in 2019, 2021 and 2022 that have invested $8.3B in equity into over 350 assets.
Today, Cotton said his team is looking at longer-term investments in sectors with positive demand drivers like life sciences, data centers and industrial as well as specialized assets like resorts and marinas that have shown solid demand postpandemic.
“At a high level, we are definitely on offense,” Cotton said in an interview with Bisnow this week. “We’re healthy. We have capital. Those are differentiators in this market at the moment, and a lot of the activity we are seeing is not forced selling but stressed selling.”
Courtesy of Bain Capital
Bain Capital’s Ryan Cotton.
The firm registered a new fund targeting $3.7B in July 2023, a 25% increase from its prior fund. The fund is looking to invest in sectors including life sciences, urban infill industrial properties, open-air retail and medical office buildings.
“We’re not chasing something because it’s cheap,” Cotton said. “We’re buying what we want to buy, but where we can, we’ll buy it off of a lender instead of the equity holder. We’ll go cut a portfolio deal with somebody that’s got a big discount embedded in it because it’s a portfolio. Those things very much are a part of what we’re doing right now.”
Bain is also looking to buy distressed assets, particularly through its special situations team headed by Barnaby Lyons.
That team has raised at least $5.7B, most recently through its Global Special Situations Fund II in November, to invest across equity and credit platforms targeting one-off special opportunities, including distressed assets. As of late, the team has focused on lending opportunities, specifically where banks have retreated.
“We’re taking advantage of the hyperdistress as well,” Cotton said.
His team is focused on long-term demand themes, and he sees several opportunities that have followed the changes of the industry after the pandemic.
Although the life sciences market is going through a correction period from what Cotton called its “hype cycle” in 2020 to 2021, he said the market is still attractive. Bain has invested in life sciences real estate across the country, including in its hometown of Boston and nearby Cambridge, and he said it has focused on properties with small tenants.
“It’s about understanding and delivering for your tenants,” Cotton said. “What we like about those really small tenants is they have specialized needs. They have short time frames, ‘I got funded last week, and I want to do science next week.'”
Other growth areas he cited include data centers, which have boomed to meet the demand generated from artificial intelligence. But, like the life sciences sector, there is concern that the growth of the data center market is tipping into an oversupply, with Chinese startup DeepSeek spooking some investors and Microsoft scrapping some leases.
Another area the company is targeting is smaller, infill industrial spaces, Cotton said. In Greater Boston specifically, the firm has partnered with Oliver Street Capital on several such investments.
It has also invested in the media sector, specifically soundstages. The firm secured a $300M construction loan with joint venture partner Bardas in June for a Hollywood soundstage. The project would create a 610K SF production and creative space on Santa Monica Boulevard.
Additionally, the company is targeting investment opportunities in specialized real estate, especially assets that people rely on for leisure activities. This segment includes boutique hotels and marinas as well as senior housing.
“What are things we like doing with our leisure time, or what are the experiences we like having that require specialized real estate?” Cotton said. “I don’t think that demand is going anywhere anytime soon. In fact, we’re taking more time out of our homes.”
At the same time, Cotton said he sees opportunity in the distressed selling that has been occurring in the market.
One of Bain Capital’s recent acquisitions was a medical office building at 2440 M St. in Washington, D.C. The firm acquired it in January in partnership with Evergreen Medical Properties.
These aren’t necessarily forced sales, he said, but sales from owners that need to generate some sort of liquidity either to pay down maturing loans or buy other assets.
A major asset class going through this right now is the office market, Cotton said, a sector that has seen a divide between well-performing Class-A and trophy assets and all other buildings. Though many investors are seeing office buildings coming back, that recovery hasn’t been even.
The same is happening in the large-scale industrial sector with properties that were booming in the height of the pandemic when big e-commerce companies rapidly expanded. That demand has since fizzled.
He said that some multifamily owners are also starting to feel pressure.
“Financing-related distress is happening in pockets of multifamily as well,” Cotton said. “Borrowers who don’t have the capital to pay down their loan or play defense or the relationship with their lender to work it through. Lenders are becoming impatient because there is a bidder for those assets.”
As for the overall capital markets activity, Cotton said he is seeing momentum grow.
“We’re starting again to see the markets pick back up, but we’re in for kind of a long fight through a work through of all that stress that’s out there,” Cotton said.
He said there are many mortgages maturing in a different rate environment than owners expected, and there has been less patience from lenders.
“All of those people who had been preaching the gospel of a rate rollover, ‘Relief is coming, just give me a year or two,’ suddenly realized we’re stuck in a higher-for-longer environment, and that’s a very different game,” Cotton said.
Cotton said that in 2023 and 2024 many investors focused on debt because of the strong, safe returns, but now investment is pivoting back to equity, which comes with higher risk but greater returns.
“You’ve seen most investors start to go risk-on in equity again, carefully with maybe different managers than they did in the past, maybe at a different scale than they did in the past. But that pendulum is swinging back toward risk-on at the moment, which is a necessary precondition for recovery,” Cotton said.
