Torchlight raises $300m for debt fund

The New York-based real estate investment firm has held a first close for its $1 billion opportunistic debt fund, collecting commitments from investors that include the Contra Costa County Employees’ Retirement Association and the South Carolina Retirement System.

Torchlight Investors has collected $300 million for the first closing of its latest real estate debt fund, Torchlight Debt Opportunity Fund IV, according to sources familiar with the matter. The firm, which is seeking to raise $1 billion in equity for the fund, secured commitments from seven investors, the majority of which were making follow-on commitments. Limited partners include the Contra Costa County Employees’ Retirement Association (CCCERA), which committed $60 million in March, and the South Carolina Retirement System, which agreed to invest $75 million in April.

Fund IV will invest in both private and public commercial real estate debt, including commercial mortgage-backed securities, distressed first lien mortgages, mezzanine loans, preferred equity and commercial real estate municipal debt. According to sources, Torchlight will be focusing its investments on mid-market opportunities in secondary cities with strong fundamentals.

Torchlight is offering a 25 basis point discount on management fees for limited partners that invest $50 million or more in Fund IV or have invested $100 million across multiple Torchlight funds, according to documents presented to investors. A 50 basis point discount is being offered for commitments of $100 million or more in the current fund or $300 million with Torchlight. The vehicle is targeting a net annualised return of 15 percent, which would include quarterly current income of 8 percent to 9 percent.

Fund IV is Torchlight’s seventh commingled real estate fund, as well as the firm’s largest to date. Its first opportunistic debt fund, ING Clarion Debt Opportunity Fund, closed on $280 million in 2004 and has generated a net internal rate of return of 25 percent. The successor vehicle, ING Clarion Debt Opportunity Fund II, raised a total of $713 million in 2006 and is likely to have a zero to slightly positive net return, according to documents from CCCERA. Fund III, a 2008 vintage fund, amassed $764 million in capital and is projected to generate returns in the mid-teens.

Torchlight, formerly ING Clarion Capital, was founded in 1995 by Dan Heflin. In 2010, Heflin and his partners repurchased a 40 percent stake from Dutch banking and insurance conglomerate ING Group, thereby regaining full control of the business. The firm, which was renamed Torchlight Investors following the repurchase, currently has $3.3 billion in assets under management.