Cornerstone Real Estate Advisors has won two separate account mandates to invest into the European real estate mezzanine debt market, Real Estate Capital can reveal.
The two mandates of $200m each will target different types of deals with different return requirements. The investment has come from a US-based insurance company – not parent, Mass Mutual – and a pension fund. Additionally Cornerstone is considering raising a fund to invest in the same area once the mandates are invested.
Cornerstone’s entry into the mezzanine market comes despite a dramatic fall in returns for such lending over the past year, with the MassMutual-owned lender seeing the opportunity as still having some way to run.
Cornerstone president Scott Brown told Real Estate Capital, “It depends on where spreads are and where banks need to be as to how long the opportunity lasts. In the core space there is a question mark but in the more high yielding part of the market then we think there is longer to run. It is not always possible for the banks to enter that space because of complications over regulatory requirements.”
The two mandates will look to issue tickets of €35m and up. Terms will generally be three years with two one-year extension options. One mandate has a 7% return target and will go up to LTVs of 75% and the other a 9% return target and will go up to LTVs of 85%. Cornerstone will invest predominantly in the UK, Germany, France and the Nordics.
In the first instance the initiative will be headed by Jamie Henderson, managing director and head of alternative investments group at Cornerstone who is based in Hartford, Connecticut. However, Cornerstone is looking to relocate staff from the US to London to oversee the mandates.
Cornerstone already invests in long-term, fixed rate senior debt within the European real estate market, with this area being driven by head of European real estate finance Chris Bates.
Last week Cornerstone issued a 12-year, £120m loan to the UK Commercial Property Trust in order for it to refinance its portfolio.