Berkshire captures $1bn for first debt fund – Exclusive

The Boston-based real estate investment manager, which just held the first and second closes for the new vehicle, is now nearing the fund’s hard-cap.

Berkshire Group has raised $1 billion for its first real estate debt fund after two back-to-back closes for the Berkshire Multifamily Debt Fund, PERE has learned.

The Boston-based real estate investment manager declined to comment, but PERE understands that the firm held a first close of $800 million last month and a second close of $200 million this week.

Berkshire, which began marketing the fund in the spring, has set a hard-cap of $1.25 billion for the fund, according to sources familiar with the matter. One of the investors in the new vehicle is Tennessee Consolidated Retirement System, which approved a commitment of up to $150 million last month.

Berkshire Multifamily Debt Fund is Berkshire’s first dedicated real estate debt fund. The firm also makes debt investments through its real estate equity funds series, the Berkshire Multifamily Value Funds, as well as through separate accounts.

In the multifamily debt space, Berkshire has been an active buyer in Freddie Mac K-Series investments, which are highly liquid, rated securitizations backed by stabilized multifamily properties. The firm is a participant in the Freddie Mac Capital Markets Execution program, where transactions involve investments in newly-originated Freddie Mac multifamily first mortgage pools and supplemental mortgage pools.

Through its participation in the CME program, the firm’s debt investments may include purchases of discounted securities representing the junior position in Freddie Mac first mortgages and supplemental mortgages, or mezzanine financing opportunities for new acquisitions and refinancing of properties where Freddie Mac is the first mortgage lender, according to a filing with the Securities and Exchange Commission.

Berkshire also is in the market with its fourth closed-ended equity fund, Berkshire Multifamily Value Plus Fund IV, which has a $350 million target. Through that fund, the firm will pursue equity and debt investments in US multifamily assets, including value-add redevelopment and ground-up development. Its four primary strategies for the fund include Freddie Mac K-series investments, risk-mitigated development, asset recapitalizations and direct acquisitions, according to documents from the New Mexico State Investment Council, which committed $50 million to that fund in June.

The predecessor fund, Berkshire Value Plus Fund III, “was performing well in line with expectation,” generating a net internal rate of return of 13.8 percent at year-end 2016, against expected net returns of 11-12.5 percent, the NMSIC documents said.

Founded in 1966, Berkshire had $7 billion of real estate assets under management as of June 30.