USAA Real Estate has formed a strategic partnership with Square Mile Capital Management, acquiring a non-controlling interest in the New York-based real estate investment firm. In exchange for an approximately 49 percent stake, the real estate arm of the San Antonio, Texas-based financial services firm will invest an undisclosed amount of capital in Square Mile upfront, as well as make a substantial commitment to invest in future vehicles. Managing principals Jeffrey Citrin and Craig Solomon will retain a majority interest in the firm and continue to oversee day-to-day operations.
“We anticipate an outstanding opportunity to participate in the recapitalisation of the $1.5 trillion in commercial real estate loans that will mature over the next five years and, in targeting this sector of the market, we sought a best-in-class partner,” said Len O'Donnell, president and chief operating officer of USAA Real Estate. “Square Mile offers the experience and talent we sought, along with a proven track record of success in this area.”
In recent years, Square Mile has emerged as a savvy real estate investor with a knack for distressed and high-yield debt, recapitalisations and undervalued equity situations. Since launching in 2006, the firm has deployed nearly $2 billion of equity raised through three discretionary funds.
“While we have made great strides as a firm in recent years, our platform’s alliance with USAA Real Estate will help us to open new doors and provide us with even more firepower in the marketplace, while enabling Square Mile to remain nimble and decisive in our decision-making,” said Citrin.
According to Solomon, the benefits of the partnership are twofold. First, the financial stability and improved access to sponsor capital will help Square Mile to prudently grow its business and maximise opportunities for the firm’s current and future investors. “Capital today is at a premium,” he said, noting that the ready availability of capital through the partnership will strengthen Square Mile’s existing investment programme and improve its pursuit of investment opportunities.
Second, the strategic relationship with USAA is expected to open new avenues for sourcing proprietary off-market transactions. “This is due primarily to their large national network,” Solomon said, adding that the partnership also will provide Square Mile with access to complementary investment disciplines that will augment its own internal underwriting capabilities.
From USAA Real Estate's perspective, it saw the investment as an opportunity to diversify its product offering. “The investment in Square Mile will facilitate the continued diversification of our investment portfolio, while providing the opportunity to offer a broader range of investment options to our institutional clients,” O'Donnell said.
An accomplished real estate investor in its own right, USAA Real Estate’s expertise historically has been in core, core-plus and development strategies rather than the distressed and opportunistic approach that is Square Mile’s forte. Its multi-billion dollar portfolio includes $3 billion in recent acquisitions and $2 billion in development assets.