Goldman’s REPIA plots $3bn US and Europe debt fund

The investment bank’s private equity real estate platform is expected to raise a sequel fund to its 2008, $2.6bn GS Real Estate Mezzanine Partners that would target both US and European opportunities.

One of the world’s largest ever real estate debt funds is expected to be launched later this year by Real Estate Principal Investment Area (REPIA), the private equity real estate business of Goldman Sachs.

The firm is expected to ignite capital raising efforts for the vehicle towards the end of the third quarter or early in the fourth quarter this year, PERE has learned. REPIA declined to comment but It is understood to be targeting a total capital raise of approximately $3 billion – slightly more than the $2.6 billion raised for its GS Real Estate Mezzanine Partners, a US-focused real estate debt fund, in 2008.

REPIA is believed to have originated and purchased almost $2 billion of senior and mezzanine loans in 2011 through that fund and the launch of the sequel vehicle is thought to coincide with the conclusion of its investment period.

The sequel fund is expected to be invested in both the US and Europe on a 50:50 basis. The expanded strategy stems from a belief within the Wall Street bank that Europe’s real estate credit markets today look similar to US markets three years ago, shortly after the collapse of rival Lehman Brothers.  It sees opportunities to plug a currently sizeable financing gap as Europe’s traditional lenders continue to withdraw or scale down their presence.

While the anticipated scale of the incoming fund puts it among the biggest of its type, other platforms have also identified Europe as a ripe hunting ground for mezzanine lending and debt acquisitions including Pramerica Real Estate Investors, LaSalle Investment Management and Duet Private Equity. The Blackstone Group also has a dedicated platform for real estate debt encompassing both European and US strategies and other heavyweight investors like Fortress Investment Group and Lone Star Funds have also positioned themselves firmly in the region's debt space.

For REPIA, the heavy focus on real estate debt both stems from where it is understood to believe the best opportunities reside currently, but also from the particular skill set of its team, which as of last September, comprised 28 professionals. It is led by joint global heads Alan Kava in New York and James Garman in London. Both Kava and Garman have expertise in the real estate debt space and have spent recent years restructuring the debt behind the assets of the firm’s Whitehall 2005 and Whitehall 2007 global opportunity funds which attracted $3.8 billion and $4.8 billion of equity respectively.

The capital of those vehicles was deployed towards the peak of the market and, consequently, REPIA saw values spectacularly fall away as the global financial crisis battered real estate markets across the world. Nonetheless, the firm is understood to have since been able to recapitalise and regenerate the value of particular key assets as markets rebounded.

While GS Real Estate Mezzanine Partners was originally launched with a view to investing largely in mezzanine loans, B-notes, CMBS, preferred equity positions and real estate-based corporate debt, it is understood, through the fund, REPIA has been able to deploy capital also via senior loans, often arranging coupons generating returns of between 9 percent and 10 percent. By utilising limited leverage arranged through the fund’s various financing lines, these loans can generate returns of nearer 15 percent, typically achieved via mezzanine lending.

The incoming fund is slated to be blind-pooled and commingled with a three-year investment period and options for extensions – in line with other private equity real estate funds. No placement agent is expected to be used for its capital raising. It is unclear at this stage what the typical size of each investment for the fund would be but for the original GS Real Estate Mezzanine Partners, investments were in the $50 million to $150 million range.

Besides its Mezzanine funds, REPIA is still also deploying capital from its 2008, $2.3 billion Whitehall 2008 opportunity fund and US Real Estate Opportunities I core and opportunistic fund which is US focused and collected $1.995 billion of equity from investors that same year.