South Carolina commits $100m to Brookfield real estate fund

The Brookfield vehicle has so far brought in $2.43bn and is targeting $3bn – nearly double the size of its predecessor.

The South Carolina Retirement System Investment Commission has approved a commitment up to $100 million to the Brookfield’s latest real estate debt vehicle during its Thursday meeting.

The Brookfield Real Estate Finance Fund V targets floating-rate, interest-only loans backed by US assets across all asset types with the option to lend up to 20 percent of the capital internationally, according to an RSIC spokeswoman.

The debt fund is targeting $3 billion, nearly double the size of BREF IV, the June meeting materials showed and has so far raised $2.43 billion in capital.  The vehicle has a 10-year term, with two one-year extension options, and a four-year investment period, and comes with a management fee of 1.4 percent on invested capital, a 15 percent performance fee and a 6 percent hurdle rate.

BREF V will predominately target mezzanine debt, typically originating a whole loan and then selling off the senior debt while maintaining a subordinate piece, specifically in the 60-80 percent loan-to-value tranche, the materials read.

“We think that debt strategies of this nature will deliver compelling, equity-like returns over the next few years,” Geoff Berg, chief investment officer at the RSIC, told Private Debt Investor in an email.

RSIC also invested in Brookfield’s prior two real estate mezzanine debt funds, providing a $50 million commitment to BREF IV and a $75 million commitment to BREF III, according to PDI data.

The predecessor 2014-vintage BREF IV showed a net internal rate of return of 11.3 percent as of September 2016 and originated 23 loans, the meeting materials showed. The 2011-vintage BREV Fund III showed a net IRR of 11.1 percent as of September 2016 and originated 11 loans.

“Today, the market requires a greater equity investment by the borrower/sponsor which reduces the risk for the mezzanine lender while still creating a compelling return,” read a RSIC staff memorandum recommending the commission approve the commitment.

The memo went on to note that across all 84 loans that Brookfield has originated since the inception of the first BREF strategy, there have been only five foreclosures.

Brookfield was not immediately available to comment.