Bank adds $600m to $1.8bn raised for Broad Street debt vehicle with wider remit
Goldman Sachs is continuing to bet on real estate debt, closing its second real estate credit fund raised since the global financial crisis and making a hefty contribution from its own balance sheet. The global investment bank raised $1.8bn for Broad Street Credit Real Estate Partners II, slightly short of its $2bn target, but topped it up with $600m of its own capital. It will juice up yields by gearing the capital invested and says it expects to achieve returns in the mid teens. The fund is investing across the debt capital stack in performing senior and mezzanine loans and in both the US and Europe this time.
The bank has been able to make such a large principal investment from its own balance sheet because debt investing is not covered by the US Volcker Rule, which was approved last year and caps banks’ investment in private equity and hedge funds at 3%. Goldman has, however, had to change the name, dropping Goldman Sachs. The first fund is called GS Real Estate Mezzanine Partners. Raised in 2008, it invested $3.5bn in 28 deals, two-thirds in senior mortgages and one-third mezzanine loans.
The bank’s real estate team is part of its merchant banking division and is run by Alan Kava in New York and Jim Garman in London. In a press release Garman said: “We are excited to add credit investing to our European platform, which allows us to build on our long history of investing in this region.” Broad Street CREP II is managed by managing director Peter Weidman and has so far acquired five US loans totalling just over $500m. The fund has a three-year investment period.
Existing limited partners in GS REMP have invested alongside new institutional and private investors. Close to 60% are from the Americas, just under 40% from Europe and a small amount of capital came from Asia. The property team works alongside infrastructure, corporate, private equity and private credit colleagues in the merchant banking arm, which has unified the naming of funds as Broad Street.
DRC attracts new players for £487m Euro debt fund sequel
In another debt fund final closing, London-based mezzanine provider DRC Capital raised £487m for its second fund, ERED II, beating its £400m target size. The investment manager gathered £487m of commitments from just under 20 investors for European Real Estate Debt Fund II. They are a mix of pension funds, including Sacramento County Employees and New Mexico’s Public Employees Retirement Association, asset managers, and a small amount of insurance company money, both invested directly and through consultants.
About three quarters of the capital came from new investors. North American investors accounted for just less than 40% of the fund raising, which placement agent Evercore advised on. DRC managing partner Dale Lattanzio says: “It is an exciting time in the evolution of the commercial real estate debt investment sector in Europe and we are focused on capturing the investment opportunity on behalf of our investors.”
The fund is following the strategy of DRC’s 2011, £300m ERED I fund in buying existing debt and originating loans underpinned by offices, hotels and retail assets. It is targeting 10%-plus returns and is active mainly in the UK, Germany and other parts of northern Europe, where it has already made six investments.
These are: a €16.2m mezzanine loan as part of a refinancing of six German department stores let to Metro Group subsidiary Kaufhof; a €37.5m mezzanine loan to Evans Randall, as part of a refinancing of its Stuttgart Konigsbau Passagen mall; a €47m flexible loan to Cornerstone’s Nordic Retail Fund; a €20m facility for Victory Advisors to buy the Atrium office building in Amsterdam; the acquisition of a retail loan in Copenhagen; and £20m of junior debt to Queensgate Investments to fund the purchase of Executive Offices Group.