PCCP to take over Lehman mezzanine funds

PCCP, the West coast debt shop, is set to acquire the two real estate mezzanine funds of Lehman Brothers, the firm and bankrupt bank confirmed today.

After months of negotiations with limited partners and the Lehman Brothers estate, PCCP – formerly known as Pacific Coast Capital Partners – will acquire Lehman Brothers Real Estate Mezzanine Partners I and II, raised in 2005 and 2007, for an undisclosed amount.

PERE first revealed PCCP was in prime position to buy the commingled vehicles in June, following the management buyout of the Lehman Brothers Real Estate Private Equity (REPE) group.

The funds, which manage about $2 billion of assets, will now be renamed PCCP Mezzanine Recovery Partners I and II with immediate effect, PCCP and Lehman Brothers Holdings both confirmed in an emailed statement today. The transaction follows a bidding process led by Lazard Freres.

William Lindsay, PCCP founding principal, told PERE the deal followed “many months” of negotiations. The length of the process, he said, was owing to the complexity of the funds' structure and the number of investors involved.

With 46 separate positions in the two funds, some involving hundreds of properties, Lindsay said some assets were in “great shape” but others “needed capital and are in need of a lot of patience and care.” The funds acquired mezzanine positions backed by assets mainly in North America, but also in Europe, across property sectors.

PCCP, which manages four commingled funds itself and five joint ventures with pension funds, is opening an office in New York following the deal, and taking on the existing Lehman real estate mezzanine team to help workout troubled positions within the two vehicles.

Lindsay said PCCP staff had known their Lehman counterparts for “years on a personal basis. This is a good fit for us because we didn't have to underwrite people, we already had those relationships.”

The two funds will also allow PCCP to expand its investor base, Lindsay added. “We are very excited about this. It's something we deeply know how to do and do well and allows us to open a presence in New York, which is going to be critical to us in the future.”