Locust Point raises $312m for niche debt strategy

The Red Bank, New Jersey-based firm’s debut fund is a rare example of an alternative real estate sector-specific credit vehicle.

Locust Point Capital has closed on Locust Point Private Credit Fund, a $312 million real estate debt fund focused on providing financing for senior housing and healthcare facilities.

The Red Bank, New Jersey-based firm’s debut fund was oversubscribed, and 15-20 investor groups had to be turned away, managing director and partner Eric Smith told PERE. Indeed, the $312 million raised over the last two years surpassed the firm’s $250 million target and broke the $300 million hard-cap. The fund comprised approximately 30 percent European investors and 70 percent US-based investors, which included endowments, insurance companies, pension funds, foundations and several US family offices.

Chicago-based investment bank Ziegler Companies, along with German fund of funds Deutsche Finance Group, acted as the two anchor investors, according to Nina Lesavoy, founder of New York-based placement firm Avec Capital. Avec Capital/XT Capital Partners acted as global placement advisor and law firm Morgan Lewis served as fund counsel.

Through the fund, Locust Point will provide $3 million-$5 million in loans to senior housing owners and operators, which are typically refinanced within 12-24 months, Smith said. The firm had employed this lending strategy before spinning out of private credit firm Contemporary Healthcare Capital. Locus Point has targeted institutional investors, which allows the firm to continuously raise funds, Smith said. By contrast, Contemporary Healthcare Capital raised capital from high-net-worth individuals, which often need previous funds to liquidate before they are willing to commit capital again, he noted.

Already, Locust Point has invested $100 million of the fund’s capital to provide financing to enable borrowers to acquire a property, stabilize projects or enhance operations in the senior housing and skilled nursing sector, according to Smith. The firm provides financing to three types of borrowers: those pursuing a light value-add strategy, which involves an acquisition that requires minor upgrades; those with a heavy value-add strategy, which involves an acquisition that needs physical renovations or lease-ups; and GPs that are looking to do ground-up construction. Thus far, the $100 million has been deployed evenly among these three groups, he said.

Debt funds have been a bright spot in real estate fundraising, with a record $30.53 billion garnered for the strategy in 2017, according to PERE data. However, real estate debt funds with a focus on one property type remain a small minority, while those with a focus on one alternative sector are even rarer. Of the 2,958 closed real estate funds in PERE’s database, 419 are real estate debt funds. Of those 419 funds, just 13 percent have a multifamily-specific focus. In contrast, Locust Point Private Credit Fund is the only real estate debt fund with a senior-housing specific focus recorded to date, according to PERE data.

“There are quite a few funds that have raised capital or are raising capital [for senior housing], but that’s more from an equity perspective,” Smith said. “There are significantly [fewer] funds approaching it from a debt perspective. “

Locust Point offers subordinate debt, preferred equity and opportunistic senior mortgage loans for owners and operators of senior housing, post-acute care and supportive healthcare services around the US. In addition to its headquarters in New Jersey, it has another office in Washington, DC. The firm currently has $99.8 million in invested capital according to Smith.