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Madison closes $2bn US-focused debt fund

The New York firm has raised the largest dedicated US real estate debt vehicle since the beginning of the pandemic.

Madison Realty Capital has closed its fifth real estate debt fund with $2.08 billion in capital commitments, affiliate title PERE reported. The raise represents the $8 billion firm’s largest fundraising effort since its inception in 2004, exceeding an initial target of $1.75 billion.

Madison Realty Capital Debt Fund V, which entered the market in February 2020 and had a hard-cap of $2.25 billion, is the largest US-focused debt fund raised since the start of the pandemic and the second-largest debt fund to close in the past year. Only Brookfield’s Real Estate Finance Fund VI, which closed on $4 billion in December, has raised more.

 

More than half of the latest fund’s commitments were raised from new investors across the LP universe, with the investor base skewing towards corporate and public pensions, sovereign wealth funds and insurance companies, Madison managing principal Adam Tantleff told PERE. Most of the fundraise was carried out via video conferencing, with 70 percent of prior Madison investors also opting to commit to the new fund, including the Texas Municipal Retirement System.

“When you’re operating in an environment like that, past performance and reputation is paramount. A lot of people who invested with us followed us for a period of time,” Tantleff said. “There were some investors we met for the first time over Zoom but knew us by reputation.”

Alternative forms of real estate debt have become more commonplace in the last cycle, Tantleff noted. Madison is one of a few that operated pre-global financial crisis, allowing them to show multiple cycle testing for its thesis, he added.

“Allocators during this period were searching for alternative credit strategies. They really wanted to access those types of strategies with more established players,” Tantleff said. “I think that that is why we had such a significant amount of new investors.”

The fund will continue Madison’s strategy of originating special situations and transitional senior loans, as well as buying non-performing loans across a multitude of asset classes and geographies within the US. It also provides financing for ground-up development. Fund V is already around 50 percent committed. The vehicle’s loans will vary significantly in size, with Tantleff noting that the last fund had loans ranging from $5 million to $485 million.

“No one [else] really does that,” Tantleff said. “We still look at loans in the $20 million to $80 million range because that’s how you build the business. We’ve seen enough times that someone we lend to as they’re starting out, over the course of time you’ve done six, seven, eight deals with them and they’ve grown and you’ve grown with them.”

With the fund, the firm’s bread-and-butter sectors remain traditional multifamily and for-sale condos. However, Madison will also target the hospitality sector, as well as some retail, industrial and office.

Geographically, the fund will focus on most of the major markets in the US. Madison has a significant presence in New York, California, Los Angeles, Boston, Chicago, Miami and Austin. However, with a greater uptake and acceptance of alternative sources of capital, Tantleff said, the firm is seeing more opportunities in other markets.

“This fund is turning out to be our most geographically diversified fund,” he said.