September 24, 2009 / 3:32 PM / 10 years ago

UPDATE 2-Canada's Onex eyes U.S. commerical real estate

* Looking to take advantage of struggling U.S. market

* Could partner with “institutional relationships” (Adds chairman quotes, recasts, in U.S. dollars unless noted)

By Pav Jordan

TORONTO, Sept 24 (Reuters) - Onex Corp OCX.TO, the Canadian private equity firm, sees potential for acquisitions in U.S. commercial real estate, but does not plan to use much of its C$4 billion warchest to invest in it.

Onex Managing Director Andrew Sheiner told investors on Thursday that the company, whose investments range from cosmetics to gaming, hoped to take advantage of a looming crisis in the business of leasing U.S. office space.

“Our hope is that we will be able to partner with some of our institutional relationships to take advantage of the looming crisis in the U.S. commercial real estate industry,” Sheiner said in a webcast presentation to its investors.

But Onex Chairman Gerald Schwartz said the sector was promising, but Onex preferred to tackle it with third-party capital.

“We think that real estate still is a good asset category and one that can be built as part of an asset management activity, but I don’t see us using a lot of our own capital in real estate,” he said.

The $6 billion commercial property market has emerged as a potential threat to the nascent U.S. economic recovery, catching the attention of the Federal Reserve and U.S. lawmakers.

The belief that distressed U.S. mortgage assets are priced at a discount, with significant potential upside, has led a number of large investment firms to create real estate investment trusts (REITs) to buy assets. [ID:nN18263803]

While Toronto-based Onex looks at deals in aerospace, healthcare, gaming and building products, Schwartz said exciting opportunities are scarce because stakeholders are reluctant to unload assets at fire-sale prices.

“People who own businesses ... look around the market place and say, ‘Gee, this is the worst time we could sell a business. ... Why don’t we just wait another two years and we’ll get a better price for it’?,” he said.

Schwartz was coy about what could come next for the firm, beyond saying it was poised to make smart investments.

Onex acquired a majority stake in the Tropicana Las Vegas Hotel and Casino in July after the property emerged from bankruptcy protection. Onex was the largest secured debtholder in the company.

Onex was formed some 25 years ago, going public in 1987 as it became Canada’s biggest and best-known leveraged buyout firm, tackling distressed companies in industries ranging from electronics manufacturing, health care, movie theaters and cosmetics.

Onex partner Seth Mersky said during the webcast that the company’s stock is highly undervalued.

“It’s very irritating,” he said. He said the stock was undervalued by some 26 percent, or C$6.50 a share.

“It’s now defying rational mathematics. There’s nothing in it that you can point to to justify a discount.”

Onex shares were 1.88 percent lower at C$24.48. That’s below the year high of C$28 per share in October last year, but well above its low of C$12.86 in March. ($1=$1.09 Canadian) (Reporting by Pav Jordan; editing by Rob Wilson)

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