Mesa West Capital is two weeks away from finishing the capital raise for its third value-added debt fund, Mesa West Real Estate Income Fund III. To date, the real estate investment manager has gathered more than $700 million in equity, beating its original target of $650 million. However, the firm is expected to close on additional commitments that would take the vehicle’s total capital haul to between $730 million and $750 million by the end of the month, according to a source familiar with the situation. Mesa West declined to comment.
The Los Angeles-based commercial real estate lender, co-founded by Jeff Friedman and Mark Zytko, first launched the fund, which has an $850 million hard cap, during the first quarter of 2012 and held a first close of $379.2 million in November, according to a filing with the US Securities and Exchange Commission. Among Fund III’s early investors was the Texas Permanent School Fund, which committed $75 million in July 2012. The endowment later was joined by limited partners that included the Los Angeles City Employees Retirement System (LACERS), which committed $25 million in December; Hawaii Employees’ Retirement System, which earmarked $20 million in January; and San Diego City Employees’ Retirement System, which agreed to invest $20 million in April.
Mesa West lowered the management fees for Fund III by 15 basis points as compared to Fund II, with limited partners paying a 1.35 percent fee both on committed capital during the investment period and on invested equity. The general partner also agreed to eliminate the 50:50 catch-up of its previous value-added funds for clients of Courtland Partners, including LACERS, according to a document from the pension system.
Mesa West closed its last fund, Mesa West Real Estate Income Fund II, on $614.5 million in commitments in June 2010, exceeding its original target of $400 million. The vehicle was generating a net internal rate of return of 15 percent since inception and 1.17x equity multiple as of June 30, 2012, according to the LACERS document.
Similar to its predecessor vehicles, Fund III, which has a target net return of 12 percent, will be focused on originating and servicing first mortgages and exclusively floating-rate loans on middle-market, value-added and transitional commercial real estate assets across the US. To date, Mesa West is said to have closed on more than $300 million in transactions on behalf of the Fund III. The firm struck its first deal on behalf of the fund in April, when it originated a $55 million first loan to Emmes Asset Management for the recapitalization of a 376,000-square-foot Class A office complex in Newport Beach, California.
Meanwhile, Mesa West also is raising Mesa West Core Lending Fund, an open-ended core real estate debt fund that is targeting fixed- and variable-rate loans on more core-like properties. Texas Municipal Retirement System committed $100 million to the fund in December, but the pension plan and Mesa West ended negotiations during the summer after the two failed to agree on contract terms. Despite the loss of the commitment, the firm is said to have amassed $360 million in equity to date for the core lending fund and is anticipated to raise approximately $500 million when it concludes its initial round of fundraising during the fourth quarter. PERE understands that Mesa West already has invested about $300 million through the vehicle.