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Goldman Closes Real Estate Credit Fund at $4.2 Billion

Goldman Sachs Group Inc. (GS), whichshifted its real estate focus to lending from buying propertiesafter the financial crisis, completed fundraising for its secondreal estate credit pool at $4.2 billion.
The New York-based firm raised $1.8 billion in equitypledges from institutions and wealthy individuals, supplementedby the same amount in borrowings and $600 million of the firm’sown money, said Alan Kava, co-head of the real estate investinggroup in Goldman’s merchant banking division. About 60 percentof the capital pledged came from U.S. investors and most of therest was from Europe, with a small amount from Asian investors.
Goldman is competing with other private debt funds,mortgage-oriented real estate investment trusts and banks inoffering ways to earn higher yields at a time of low interestrates. The new vehicle will invest in Europe and the U.S.,expanding on Goldman’s first real estate credit fund, which madeabout $3.5 billion of loans, according to a marketing document.
“We will be opportunistic in terms of where we seevalue,” Kava said in a telephone interview. “The first fundwas U.S. only. We’re hopeful we will end up with about 50-50”between the U.S. and Europe.
The new Broad Street Real Estate Credit Partners II plansto make senior loans and mezzanine loans backed by high-qualitycommercial real estate, to fund acquisitions, refinancings andrecapitalizations, according to the document. It intends togenerate returns in the “mid-teens” by charging interest rates of 7 percent to 10 percent and leveraging the equity.

Current Yield

The new fund will make and hold the loans, distributing theinterest income it receives to investors quarterly, said PeterWeidman, the managing director who oversees the new fund.
“What our investors like about this is it’s a currentyield so we’re not just making one-time distributions bysecuritizing,” Weidman said in a phone interview.
The new fund has invested about $500 million already, infive deals, according to the marketing document. They include amezzanine loan to help finance the purchase of a group ofSouthern California office buildings, and a senior loan, orfirst mortgage, on a New York City rental apartment buildingthat’s being converted to for-sale condominiums. Higher-yieldingmezzanine loans are used to fill the gap between first mortgagesand equity.
Goldman’s first real estate credit fund, known as RealEstate Mezzanine Partners, made 28 investments, about two-thirdsof which were senior mortgages and one-third mezzanine loans,according to the marketing document.
“We have a competitive advantage by focusing on largerdeals and being able to provide the entire loan to ourborrowers,” Weidman said. “We see less competition in thelarger loan space.”
The new fund has an investment period of three years, withpossible extensions, according to the marketing document.