Värde seeks $750m for bad CRE loans

The firm is seeking capital for a vehicle with a wider mandate than an earlier real estate debt vehicle.

Värde Partners is in the market with its latest real estate debt fund, a vehicle it launched after obtaining bridge capital following the maxing out of an earlier fund, PERE's sister publication, Private Debt Investor, reported Thursday.

The Minneapolis, Minnesota-based investment firm has received $422.97 million in commitments from 18 separate investors toward the $750 million target for its Värde Mortgage Fund II, according to a US Securities and Exchange Commission filing.

The US-focused fund, which will invest in both commercial and residential real estate debt, may acquire stressed loans, but there will be the opportunity to originate performing loans as well, according to a source familiar with the situation. The latest vehicle has a broader investment mandate than an earlier real estate debt vehicle, Värde Scratch and Dent Fund, which raised $500 million and held a final close in June 2015.

The firm then sought between $200 million and $300 million for Scratch and Dent Fund I-A, which it raised to keep actively investing before raising a successor fund, according to documents from the Pennsylvania Public School Employees’ Retirement System. Fund I-A had pulled in $144.5 million as of September from 13 investors, according to a SEC regulatory document. PSERS committed $75 million to Fund I-A after committing $150 million to Fund I.

A Värde spokeswoman was declined to comment.

The Scratch and Dent series invests in secured loans backed by commercial real estate that have high loan-to-value ratios, low debt-service coverage ratios and unpaid balances of $25 million, according to the PSERS documents. Specifically, Värde sought discounted secondary market purchases of existing loans while also originating new high-yield loans, including whole mortgage loans and mezzanine loans, according to additional PSERS documents. Fund I targeted a net return of 11-14 percent.

Värde closed its latest flagship distressed debt fund, Värde Fund XII, with $1.74 billion of equity commitments in March. It invests in credit, real estate and specialty finance. So far, 30 percent of the fund has been deployed, a source familiar with the situation told Private Debt Investor at the time. The vehicle has a four-year investment period that will end in March 2020, four years from the date of first close.

Founded in 1993, Värde invests in corporate and traded credit, specialty real estate, infrastructure and mortgages.

Editor’s Note: Värde Mortgage Fund II is not a direct successor of Värde Scratch and Dent Fund, as an earlier version of the story indicated. Mortgage Fund II will deal with performing and stressed loans.