AMERICAS NEWS: Core collection

The appetite of limited partners for core-like real estate investments has left many opportunistic fund managers out in the fundraising cold. For the West coast debt platform, Mesa West Capital, though it’s proved somewhat beneficial.
The Los Angeles-based firm, founded in 2004 by Jeff Friedman and Mark Zytko, has just closed its second vehicle, Mesa West Real Estate Income Fund II, on $600 million – more than $200 million over-target.
Focused primarily on first mortgage debt origination in the bridge lending space, Mesa West knows its lower-risk strategy has appealed to many LPs as they increasingly seek safety within real estate. “The appeal is that our investors do not have to time the top or bottom of the market with this strategy,” said Mesa West principal Ryan Krauch. “Investors recognise certain debt strategies can offer the safety they are looking for today with the added benefit of having high current income and an exceptional overall risk-adjusted return.”

The interest and support from investors has been incredible, particularly during a time when most investors are reluctant to take any actionstors are reluctant to take any action.

Mesa West principal Ryan Krauch

In holding a final close on Fund II at the end of June, Mesa West faced tough fundraising competition from more than 80 debt funds – targeting the whole spectrum of real estate debt acquisition and origination, including mezzanine, distressed and first mortgages.

Mesa West started fundraising for the vehicle before the collapse of Lehman Brothers in 2008, and was set to close the fund when the bank filed for bankruptcy. In the wake of the credit crisis, Mesa West lost one key investor when the Pennsylvania Public School Employees Retirement System was forced to pull back on its $125 million planned commitment owing to liquidity issues.
Existing LPs though gave the firm the green light to restart fundraising efforts in early 2009, and by the summer of last year Mesa West had exceeded its original target of between $300 million and $400 million, raising $420 million of commitments. In the past year, fund commitments rose to $600 million with 25 investors eventually committing to the fund, 17 of them new to Mesa West. All but one of Mesa West’s previous investors re-upped. “The interest and support from investors has been incredible, particularly during a time when most investors are reluctant to take any action,” Krauch added.
Fund II has already invested in four loans totalling around $100 million, including a $25.6 million first mortgage provided to the Magellan Group for the recapitalisation of a 500,000-square-foot industrial complex in Commerce, California, and a $14.5 million first mortgage refinancing for an Evanston, Illinois hotel owned by Greenfield Partners.
Three more loans valued at $84 million were expected to close at the time of press.