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Cornerstone collects $515m for debt fund, sidecar

The Hartford, Connecticut-based real estate investment management firm has held a final close for its latest club-style debt vehicle, which seeks to provide first mortgages for US commercial real estate properties.

Cornerstone Real Estate Advisers has raised $315 million for its latest debt fund, Cornerstone Enhanced Mortgage Fund, which had an original target of $300 million to $350 million. The club-style debt vehicle was structured with a smaller group of like-minded investors that included the Los Angeles City Employees’ Retirement System, which committed $25 million to the vehicle last August.

Additionally, the firm attracted $200 million in capital last year from an institutional investor for a separate account based on the strategy. Cornerstone declined to name the investor, but the Los Angeles County Employees’ Retirement Association told PERE last August that it had allocated $200 million each to Cornerstone and Quadrant for a commercial real estate debt investment mandate.

On behalf of the fund, Cornerstone, which manages the equity real estate investments of Massachusetts Mutual Life Insurance Company as a wholly-owned indirect subsidiary, will originate first mortgage debt secured by transitional properties in the US. It reportedly will provide loans with up to a 75 percent loan-to-value ratio and, in exchange, collect a fee upon the sale or refinancing of the assets. The firm is said to be targeting 11 percent to 14 percent returns, which it expects to realise through a combination of fees, current coupon and potential upside participation.

“There is growing interest in debt investing among institutional investors right now, partly in response to volatility in equity real estate and aggressive pricing in core equity real estate,” said Robert Little, chief investment officer of Cornerstone, in a statement. “We think market conditions and trends, including the liquidity-constrained financing market, market-wide re-pricing of assets and distress-motivated trades, suggest that attractive returns could be available.”

Cornerstone Enhanced Mortgage Fund launched in 2010 and held a first close on $260 million last November, according to an SEC filing. The final close for the fund follows the firm’s completion of a $546 million fundraising for its eighth value-added real estate fund, Cornerstone Real Estate Fund VIII, last month.