BentallGreenOak collects first capital for maiden value-added US debt fund

BentallGreenOak is out in the market with a US-focused value-added debt fund, BentallGreenOak US Value-add Lending Fund.

The firm is targeting $500 million, according to investor meeting documents from Massachusetts Pension Reserve Investment Management, published earlier this month. MassPRIM committed $100 million to the fund.

It is BGO’s first fund focused on value-add risk and return debt issuance in the US. The firm has other debt strategies focused on Canada, Europe and the UK, capitalized via funds as well as a general account with New York-based insurance company SunLife.

BGO also invests in core risk and return profile debt in the US. For that, it is currently in the market with two debt funds targeting $2 billion: BentallGreenOak UK Secured Lending IV and Bentall GreenOak European Secured Lending, according to PERE data.

The value-add credit fund will be overseen by Abbe Franchot Borok, managing director and head of US debt, and Jessica Lee, managing director. The firm’s global debt strategy overall is headed up by Jim Blakemore.

“BGO identified US lending early on as a strategy [in which] we as a firm had expertise and an existing foundation in place and wanted to grow,” Franchot Borok told affiliate publication Real Estate Capital USA earlier this month in a report on the firm’s US debt business.

BGO will target multifamily and industrial sectors primarily for the vehicle, with other areas of focus including hotels, life science and self-storage. The firm can also invest in office and retail via the fund but is expected to focus less on those property types.

Its loans are expected to offer between two- and five-year floating interest rates and the size of the loans are anticipated to be between $20 million and $250 million each. For value-add credit deals, the firm is willing to lend up to 85 percent loan-to-value, REC USA reported.

Alongside the BGO commitment, MassPRIM also committed $150 million to New York-based KKR’s Opportunistic Real Estate Credit Fund II. KKR is targeting a $1 billion fundraise for its strategy, according to PERE data.

Other notable debt funds in the market include Blackstone’s Real Estate Debt Strategies V fund, which has an $8 billion target, and Berkshire Residential Investment’s Berkshire Bridge Loans vehicle, for which the firm is seeking $3.5 billion. Two debt funds, Harbor Group International’s $1.6 billion Multifamily Credit Fund and Mesa West’s $1.4 billion Real Estate Income Fund V, have been closed so far this year, per PERE data.

MassPRIM

For MassPRIM, commingled fund investment in its credit portfolio is a rarity. In its “other credit opportunities” bucket, the investor has traditionally mandated separate accounts or fund-of-one structures, Chuck LaPosta, senior investment officer, said. MassPRIM will also have a limited partnership advisory committee seat on the fund to offset the lack of control, he added.

“Given PRIM’s size, scale and objectives, we tend to prefer separately managed accounts or single investor funds which afford PRIM a greater degree of control and customization,” LaPosta told PERE via email. “However, there are instances where benefits, including diversification or implementation, prompt us to recommend commingled fund investments, such as now.”

MassPRIM likes real estate debt because it offers “favorable risk-adjusted returns” relative to its public value-added fixed income allocation. The strategy typically produces 8 percent to 12 percent returns net of fees with bond-like volatility, LaPosta said at the meeting.

The desire to invest in debt now is due to the market environment. “Recent increase in bank regulations has dramatically slowed bank lending, leaving room for alternative lenders like debt funds to fill a capital gap,” Christina Maracelli, senior investment officer said.

“It’s become more of a lender’s market as well. Lenders can be choosier and lend to higher quality sponsors and properties at lower loan-to-value ratios, higher spreads and tighter covenant protections,” she continued.