Goldman Sachs raises $1.8bn for RE credit fund

Goldman Sachs has raised $1.8 billion for its second real estate credit fund, it announced this morning.

The New York-based bank, which manages real estate investments out of its Merchant Banking Division, revealed it had closed Broad Street Real Estate Credit Partners II (RECP II) and that limited partners included existing limited partners within in first fund called GS Real Estate Mezzanine Partners, as well as new investors.

The investor base is made up institutional and private investors from the Americas, Europe and Asia, it said. Just under 60 percent of the limited partners are from the US, just under 40 percent from Europe, and the remainder from Asia.

In a statement, the bank trumpeted it had more than $4 billion of capital available to deploy. That figure breaks down as $1.8 billion raised from third party investors in the fund, plus leverage of around $1.8 billion to increase the credit lending capacity and a $600 million commitment of capital from Goldman Sachs’ balance sheet to take it to the $4 billion capacity.

The difference between RECP II and GS Real Estate Mezzanine Partners, which raised $2.6 billion in 2008, is that RECP II has a mandate to invest in Europe and not just the US, though it is not thought to have struck any real estate credit agreements in Europe yet.

Goldman Sachs held a first close in November and has so far invested more than $500 million in five loans. So far the team has invested in two senior mortgage loans and three mezzanine loans. There is no prescribed regional breakdown but it could end with roughly 60:40 of loans being split between the US and Europe or even 50:50. Peter Weidman, the managing director who oversees RECP II, said: “We continue to see an attractive pipeline of investment opportunities in both the US and Europe.”

The fund is not captured by the Volcker Rule, because it falls under section 3(c)(5)(c) of the US Investment Company Act 1940. The Volcker Rule is part of the 2010 Dodd-Frank Act that is ultimately aimed at preventing another financial crisis, and in particular limits a bank’s own investment in a fund it manages that is deemed risky to no more than 3 percent of the total equity. The rule captures global opportunity real estate equity funds managed by banks such as Goldman Sachs and Morgan Stanley.

In its statement, Goldman Sachs said RECP II was seeking to generate “attractive risk-adjusted returns” through the creation of a diversified pool of investments in both senior and mezzanine loans collateralized by high quality real estate assets. It is not a loan-to-own fund or seeking to buy distressed credit.

From the fund, Goldman Sachs is targeting returns of 7 percent to 10 percent. However, with leverage, it could deliver investors a mid-teen return. It is looking to make loans of $100 to $200 million or above and also loans in complex, customized situations.

The bank added: “The fund’s primary focus will be to create strong current yield for its investors through the origination of loans to facilitate real estate acquisitions, re-financings and recapitalizations throughout the US and Europe.”

Goldman Sachs’ real estate team is housed within its Merchant Banking team and is run by Alan Kava in New York and Jim Garman in London.

Kava said he was “thankful for the continued support of the repeat investors” from its first credit fund and was “excited by the strong group of new investors.” Meanwhile, Garman added he was excited to add credit investing to its European platform.

Goldman Sachs decided to name the fund Broad Street rather than continuing its more familiar ‘Whitehall’ brand series. The real estate team is working in the merchant banking division alongside infrastructure, corporate, private equity and private credit colleagues and has unified the naming of funds across those asset classes as Broad Street.