PCCP and Ohio Public Employees Retirement System have teamed up to invest hundreds of millions of dollars in floating rate first mortgages in the US.
The debt shop confirmed it had secured the separate account from Ohio PERS but declined to comment on the equity investment. Sources said the deal was worth “hundreds of millions of dollars”.
The venture will see PCCP and Ohio target floating rate first mortgages, traditionally referred to as bridge loans, with loan-to-value ratios of up to 85 percent. Floating rate loans were typically short-term debt used to finance properties in need of renovation or lease-up, where cash flows had yet to be stablised.
However, with credit markets still tight in the wake of the financial crisis, and mortgage underwriting much more conservative than during the boom, many borrowers were struggling to refinance cash flowing assets where higher LTVs were needed above the market standard of 60 percent to 70 percent or finance assets with shorter-term debt.
“We have the flexibility to be able to lend in parts of the capital stack where traditional lenders feel uncomfortable,” partner Greg Eberhardt said in an interview. The venture will originate first mortgages between $25 million and $45 million secured by properties across the real estate sectors in the US, although a focus will be given to primary markets.
The venture will hold the loans to maturity and target returns in the high single, low double digit region, Eberhardt said.