New York-based developer Related Companies is readying a new real estate debt platform that would target high-yield investments. Although Related formed a $250 million construction loan fund – now fully invested – with the United Brotherhood of Carpenters in 2010, the firm’s new strategy represents its first commingled debt venture.
Under the strategy, Related will invest across the capital stack, targeting not only whole loans and subordinate positions in transitional assets, but also bridge and mezzanine debt. The investments would be lower on the risk-return spectrum than those made on behalf of its first opportunistic vehicle, Related Real Estate Recovery Fund, which has a return profile that is more similar to an equity opportunity fund.
Debt began to emerge as a larger opportunity for Related while the firm was pursuing investments on behalf of the Recovery Fund. “What became very apparent was that we were passing on a whole host of deals that were in a different place in the capital stack,” said Jeff Blau, Related’s chief executive, in an interview with PERE. “We really liked the risk-return profile, but we did not have the proper capital in our equity fund necessarily to do all those transactions.”
While Blau declined to provide specifics on potential investment vehicles, PERE understands that Related is expected to begin raising capital this year for the new strategy through a commingled fund and a number of separate accounts. The new fund’s target size and investment range would be similar to that of the Recovery Fund, which raised a total of $825 million in late 2011, sources said.
Operator-sponsored debt vehicles are rare in private equity real estate. Of the 108 debt funds that The Townsend Group currently is tracking in the market, just one or two are sponsored by developers.
Since 2010, Related has invested about $600 million of capital in debt through a combination of its equity and construction loan funds, as well as deals done on balance sheet.
For more on Related's new debt strategy, check out the full story in the March issue of PERE.