The final close of Goldman Sachs’ latest global credit vehicle demonstrates the appeal of property debt to investors seeking access to real estate returns with the benefit of debt’s defensive profile.
The real estate group within Goldman Sachs’ Merchant Banking Division raised $2.5 billion from third-party investors, with an additional $1.7 billion of the bank’s balance sheet capital committed to the fund – its largest investment in a real estate fund. With $2.5 billion of leverage matching the third-party capital in the form of term financing, Real Estate Credit Partners III will have a total of $6.7 billion to spend.
Like its predecessor funds, RECP III will provide senior and mezzanine loans in major markets in the US and Europe, ranging from $100 million to $500 million. Targeted returns will be in the mid-teens on a gross basis and low-teens on a net basis.
Real estate debt fundraising is on an upswing. In 2017, debt funds accounted for 28 percent of the total private real estate capital raised globally – up from 14 percent in 2015 and 18 percent in 2016 – and the highest such percentage during the 2011-17 period, according to Real Estate Capital data.
“There’s significant fundraising taking place in the debt space and we think that it will continue,” says Alan Kava, the New York-based co-head of MBD’s real estate group. “Debt funds are taking the place of traditional lending sources like banks, CMBS, insurance companies or other types of investment vehicles that, for a variety of reasons, don’t exist anymore.”
Although last year, real estate debt funds, excluding Europe-focused vehicles, attracted 7.6 percent less capital than 2016, European fundraising boosted volumes contributing to a record year in which more than $25 billion was raised worldwide, Real Estate Capital data show. Europe-only funds reached double digits for the first time since the global financial crisis, attracting more than $10 billion of capital from investors, an increase of 141 percent year-on-year.