The New Mexico State Investment Council (NMSIC) has approved a new commitment of $75 million to Brookfield Asset Management’s latest debt vehicle. The $19.15 billion state endowment committed to Brookfield Real Estate Finance (BREF) Fund IV in part to help reach its 10 percent target allocation to real estate.
BREF IV, which is targeting $850 million in equity commitments, launched in March, according to a filing with the US Securities and Exchange Commission. Brookfield’s strategy for the fund includes “new origination focused on higher-yielding loans to commercial real estate borrowers for acquisitions and refinancing targeting all property types across the US,” according to endowment documents. The fund’s target sector allocation is 40 percent to office properties, 40 percent to retail, multifamily and industrial assets, 10 percent to the hospitality sector and 10 percent to other properties.
According to a presentation by Brookfield to the NMSIC board, BREF IV, which is targeting a low double-digit unlevered IRR, will originate whole loans and sell or syndicate senior positions to third parties, originate subordinate loans jointly with senior lenders, originate mezzanine loans or preferred equity that is subordinate to existing long-term senior debt, provide capital to recapitalize transactions and purchase newly originated subordinate debt. The fund generally will focus on individual investments in prime locations within larger metropolitan areas.
In its recommendation to NMSIC, The Townsend Group listed the primary advantages of BREF IV to be its strong sponsor, strong sponsor alignment, historical performance and attractive investment characteristics. NMSIC has invested in three of Brookfield’s prior funds, committing $100 million to Brookfield Infrastructure Fund II, $100 million to Brookfield Timberlands Fund V and $24.8 million to Brookfield Capital Partners III.
NMSIC documents also noted that the commitment would help the endowmentf to reach its 10 percent real estate allocation, increase the overall cash yield of the real estate portfolio, reduce overall volatility and address the need for non-core tactical investments. The proposed commitment to BREF IV will bring NMSIC’s overall real estate exposure to 9.5 percent and increase its non-core tactical exposure within the real estate portfolio to approximately 55 percent, according to endowment documents. Real estate portfolio sub-allocations include 40 percent to 70 percent to core strategic investments, 30 percent to 60 percent to non-core tactical investments and zero percent to 10 percent to public REITs.