MetLife Real Estate Investors is planning to raise its first real estate debt fund, MetLife Commercial Mortgage Income Fund, PDI’s sister title PERE has learned. The new vehicle, considered a companion to its MetLife Core Property Fund, would be one of the few open-ended real estate debt vehicles in the market.
MetLife declined to comment, but PERE understands that the firm already has begun reaching out to investors to gauge their interest in the fund and officially will launch the vehicle during the first quarter. MetLife Commercial Mortgage Income Fund will originate and manage debt backed by high-quality core properties in the US. The vehicle primarily will focus on first mortgages and whole loans diversified by property type, geography and borrower. The loans, which can be fixed-rate or floating-rate, will have three- to seven-year terms.
Sponsors of open-ended real estate debt funds typically have touted the greater liquidity of these vehicles as compared to their closed-ended counterparts. Because the average life of a loan is five years, 20 percent of an open-ended debt fund’s portfolio is expected to turn over each year. With capital coming back into the fund from maturing loans, limited partners will be able to make redemption requests and exit their investments on a quarterly basis over time.
Open-ended debt funds also are marketed as generating a higher income return than open-ended core equity real estate and a higher absolute yield than corporate debt. There currently are relatively few such vehicles in the market, however. One of the better-known offerings is Mesa West Capital’s Mesa West Core Lending Fund, an open-ended core real estate debt fund that is targeting fixed- and floating-rate loans on more core-like properties. The fund is said to have attracted at least $360 million in equity to date.
MetLife Commercial Mortgage Income Fund represents just the second institutional real estate fund for MetLife, which entered the third-party management business in the fall of 2012. Last year, the firm launched its first open-ended core real estate fund, MetLife Core Property Fund, raising $2.4 billion to date, according to a filing with the US Securities and Exchange Commission this month. The vehicle is said to be currently generating a 14.1 percent gross return, outperforming its benchmark, the NCREIF Fund Index – Open-End Diversified Core Equity, or ODCE index, which has returned 8.9 percent year-to-date.
MetLife Real Estate Investors, which is led by senior managing director Robert Merck, is one of the largest commercial real estate lenders, with more than $43.5 billion of commercial mortgages under management as of June 30. It originated approximately $11.5 billion in loans in 2013. Additionally, the firm manages $16 billion of real estate equity.