Related’s inaugural CRE debt fund to target larger deals

The manager, which has invested 85 percent of its real estate lending joint venture with Highbridge, could seek up to $2 billion as it seeks to boost the size of its deals.

Related Fund Management is launching its first commercial real estate debt fund, which could target more than $2 billion in capital commitments and aims to help the group compete on larger deals, reported PDI sister title REC

The fund will give Related “more flexibility to go after larger pools”, said a person familiar with the matter, noting that the “cost of capital is too high in the current” credit investment vehicle.

The current vehicle, a joint venture lending partnership formed with Highbridge Principal Strategies (HPS) in June 2013, has invested nearly 85 percent of its available $800 million, the person said.

Funds from the HPS venture have been deployed in relatively short order for a new platform, but deals have generally not matched those of the bigger non-bank lenders in the space — the Blackstones and Starwood — who are often writing loans that stretch into the hundreds-of-millions of dollars.

Headed by managing director Brian Sedrish, Related’s loans have instead targeted transitional assets with a roughly $30 million sweet spot, typically ranging in duration from one to five years, with pre-development bridge financing typically shorter. The lender has usually held a mezzanine portion representing the 65-85 percent leverage slice behind a senior lender.

But the new debt fund, with the economies of scale offered by its commingled structure, could help boost deal size.

Sedrish has stated his desire to originate more whole loans, as well as his intention to do more business in Europe, in previous interviews with Real Estate Capital. A Wall Street Journal article, which first reported on the new debt fund, suggests that the dispositions of REITs facing sagging stock prices will be another target. 

Sedrish and a Related spokesperson declined to comment for this article.

Deals have included a $16.5 million mezz loan for the ground-up development of a 310-unit, class-A high-rise, multifamily project in the River North area of Chicago; a $29.4 million mezz loan as part of the development of a 398-unit, class-A multifamily project in the Koreatown neighborhood of Los Angeles; and a $30 million mezz loan on a 82-unit luxury high-rise condominium project in the Fitler Square neighborhood of Philadelphia.

The group also provided $60 million predevelopment bridge financing to Atria Builders and Marx Development Group for a planned 400-room Courtyard by Marriott hotel in Manhattan’s North Chelsea neighborhood; and a $34 million bridge loan for the acquisition of an 18 acre site in Santa Ana, California.