Mack Real Estate Group (MREG), the family platform previously behind Apollo Real Estate Advisors, has expanded its new business with the launch of a lending platform focused on transitional and distressed assets throughout North America and in Europe.
The new company, which is looking to raise around $750 million for a fund, has announced the direct lending business will be managed by Mack Real Estate Credit Strategies (MRECS), a real estate investment management company headed by Richard Mack, chief executive officer, and former debt professional at The Blackstone Group, Peter Sotoloff, who is chief investment officer. Initially, MRECS will focus primarily on mezzanine, preferred equity, and first mortgage loans for properties in need of flexible capital and sponsors seeking an experienced, sophisticated real estate lending partner, it said.
In a statement, MRECS said it brought together “the Mack family’s experience operating real estate credit strategy funds, commercial real estate securities funds, and investing in debt-based real estate opportunities at AREA Property Partners”, with Sotoloff’s “deep and multi-faceted background in real estate structured finance as a co-founder of Blackstone Real Estate Debt Strategies (BREDS)”.
Richard Mack said there were three reasons for launching the business now. “First, we believe that the returns currently available for loans secured by transitional assets in the United States, and for almost all European assets located outside of the very few top tier cities, will be superior to most other real estate investments, on a risk-adjusted basis. Second, Peter Sotoloff, whom we consider the best real estate debt professional in the market, has agreed to join us. Third, we are now able to invest with partners who supported us in our past businesses. We believe that they see the merits of continuing our previous, very successful real estate lending program, which was nearly unique in continuing to provide very positive returns even through the last downturn.”
Unlike in Mack Real Estate’s development business, where it plans to hold real estate assets with institutional partners indefinitely, the company believe that real estate debt investments, with finite maturities, are well suited for limited-life investment vehicles. “Through this new institutional platform, we believe we have the opportunity to provide much-needed liquidity to borrowers, while mitigating downside risk through our cycle-tested experience at the asset level,” said Mack.
Sotoloff, who left Blackstone in June for the new opportunity after nearly seven years with the firm, added: “I am excited to be co-founding MRECS with Bill and Richard Mack. We plan to build a preeminent real estate debt investment platform, relying on our extensive combined experience of creating value for investors in the real estate debt space, while providing creative capitalization solutions for borrowers.” He added: “Private lending has a major role to play in today’s real estate debt markets. Real estate finance has experienced seismic changes since the last financial crisis.”
Previously, Sotoloff served as managing director and head of originations of Blackstone’s BREDS platform. He was among the founders of the unit and helped build it into a $10 billion multi-strategy debt investment platform. Before joining Blackstone, he was a principal at Tribeca Associates, where he managed the acquisition, financing, and development of large-scale office, lodging, for-sale residential, and mixed-use assets and portfolios. He also oversaw nonperforming loan acquisitions and global risk management strategies for Morgan Stanley Real Estate Funds, and worked with the Goldman Sachs Whitehall funds earlier in his career.
Mack Real Estate has several activities in property. In addition to other debt investment activities, including Claros Fund Management, which is a long/short commercial real estate securities hedge fund, Mack-controlled entities are currently developing approximately 4,000 units of multifamily property in gateway markets throughout the US. The group directly owns and manages approximately 6 million square feet of commercial real estate and real estate developments, and holds partnership interests in entities controlling in excess of 60 million square feet. Additionally MREG is the majority owner of Winthrop Property Management, which provides third-party property and construction management services to around 10,500 multifamily units and 8 million square feet of commercial buildings.
The family involving William, Richard and Stephen, sold its interest in Apollo Real Estate latterly known as AREA Property Partners to Ares Management to form Mack Real Estate in 2013.