Square Mile, USAA launch $1bn debt platform

The two firms have created a dedicated platform focused on US real estate debt and have hired Jeffrey Fastov to lead the initiative.

New York-headquartered Square Mile Capital Management and USAA Real Estate have launched a commercial real estate debt platform that is expected to invest as much as $1 billion in the US by the end of 2014. The two firms, which first formed a strategic partnership in March 2012, have committed a total of $300 million of balance sheet capital to the platform and already have begun deploying those funds.

The platform may raise additional equity from institutional investors in the future, potential through a commingled vehicle, but it has no plans to do so at this time.

“The creation of a joint debt platform stems directly from the strategic alliance that Square Mile established with USAA Real Estate just over one year ago,” said Craig Solomon and Jeffrey Citrin, managing principals of Square Mile, in a joint statement. “This new platform is a logical complement to Square Mile’s longstanding opportunistic investment strategy.”

The Square Mile/USAA initiative will specialize in the origination and acquisition of mezzanine loans, bridge loans and mortgages in which Square Mile will provide for the entire capital stack. Such investments will feature high-quality collateral with institutional ownership. In addition, unlike a number of other real estate debt platforms that recently have launched, the Square Mile/USAA platform expects to originate loans to be held as portfolio investments rather than serving as collateral to be securitized via a CMBS offering.

The new debt initiative will be headed by Jeffrey Fastov, a 30-year property finance and investment banking veteran who has joined Square Mile as a senior principal. Fastov most recently had been working in a consulting capacity, but he was co-head of the real estate financing and securitization group at Credit Suisse just prior to that. Before joining Credit Suisse in 2011, he served as founder and CEO of Oasis Real Estate Partners for two years following an 18-year stint at Goldman Sachs, where his last role was managing director of the investment banking division.

“With the ongoing recovery of the US commercial real estate market, I look forward to the opportunity to invest in high-quality, high-yield secured real estate debt as part of a platform that benefits from the deep real estate experience of Square Mile and USAA,” Fastov said in the statement. “Seasoned market players with access to substantial institutional capital are seizing that opportunity and will play a vital role in the marketplace going forward. I look forward to working with my new colleagues to build out this platform and fully execute the business plan.”

In addition to Fastov, the debt platform will utilize the more than 40 professionals located in eight Square Mile and USAA Real Estate offices throughout the US. Those staffers represent a full range of underwriting, structuring, asset management, legal, accounting and other professional disciplines necessary for the success of the platform, which does not plan to hire additional staff at this time.

In March 2012, USAA Real Estate formed a strategic partnership with Square Mile, acquiring a non-controlling interest in the New York-based real estate investment firm. In exchange for an approximately 49 percent stake, the real estate arm of the San Antonio, Texas-based financial services firm invested an undisclosed amount of capital in Square Mile upfront, as well as made a substantial commitment to invest in future vehicles.

At that time, Len O'Donnell, president and chief operating officer of USAA Real Estate, said: “We anticipate an outstanding opportunity to participate in the recapitalization of the $1.5 trillion in commercial real estate loans that will mature over the next five years and, in targeting this sector of the market, we sought a best-in-class partner. Square Mile offers the experience and talent we sought, along with a proven track record of success in this area.”