First Equity Capital said it is targeting about $50 million in capital commitments for First Equity Assets III, its third debt fund specializing in the purchase of nonperforming residential mortgages specifically in New Jersey. The fund also marks the firm’s first attempt to attract institutional capital, having previously raised equity for its investments from high-net-worth individuals.
The Sea Girt, New Jersey-based firm launched its first fund, First Equity Assets I, in December 2009, followed by First Equity Assets II in March 2010, acquiring three loan portfolios totaling $10 million on behalf of both funds, according to John Child, managing partner of finance and administration. The firm, which launched First Equity Assets III this quarter and is hoping to close early next year, is targeting an internal rate of return of 15 percent for the fund.
Child told PERE that First Equity saw a good opportunity with distressed mortgages because of the deep discounts arising from a shaky financial system and severe capital constraints. Nonperforming loan pools are now trading at 55 percent to 65 percent of the underlying property value and 44 percent to 55 percent of the unpaid principal balance, he noted. After buying such mortgages, the firm typically offers the borrower a loan modification, a short sale or a deed in lieu of foreclosure, he said.
Founded in 2008, First Equity employs an investment strategy that is strictly focused on acquiring nonperforming residential mortgages in New Jersey. “It gives us an edge because we know the New Jersey market so well,” said Child, a former executive director of equity derivative sales at Morgan Stanley.