Goldman Sachs has closed its second real estate credit pool to further investment after raising $4.2 billion.
A limited partners fund, Broad Street Real Estate Credit Partners II (RECP II), is the second such fund established by Goldman Sachs after the firm moved from directly investing in real estate to only lending against real estate in response to the market’s crash in 2007. Today Goldman announced publicly that it has closed RECP II to further investments after it had raised $4.2 billion in equity.
The current limited partners in RECP II include institutional and private investors from throughout the US, Europe and Asia. The fund is managed by Goldman’s Merchant Banking Division (MBD) which hopes to offer real estate backed financing to borrowers in Europe for the first time.
Broad Street RECP II will make both senior and mezzanine loans which will be secured by high value real estate and have a three year investment period with an option for extensions. The lenders will charge interest rates of 7% to 10% for refinancings and new purchases by the borrowers. Broad Street will make all of the transactions and hold onto the funds while giving investors their shares of the interest payments on a quarterly basis.
The success of the first RECP led Goldman to establish a second such fund which has received the backing of many of RECP I’s investors. RECP I loaned out more than $3.5 billion to real estate owners.
Alan Kava is the co head of the MBD real estate investing group. “With this new vehicle, Goldman Sachs will be able to offer these lending capabilities to borrowers in Europe for the first time, building on its track record in the United States. RECP II will build upon the strong performance of our first fund, which invested over $3.5 billion in high quality loans, and our team’s proven track record in creating solutions on complex transactions, ” stated Kava.
“We are thankful for the continued support of the repeat investors from our first fund and are excited by the strong group of new investors that have expressed confidence in our strategy and the talented team we have in place. We will be opportunistic in terms of where we see value. We’re hopeful we will end up with about 50-50 between the U.S. and Europe, ” Kava told Bloomberg in an interview.
RECP II raised $1.8 billion in equity from firms and individual investors alike, as well as $600 million from Goldman itself. American investors accounted for 60% of the pledges with the rest coming mostly from Europe.
$500 million has already been invested in five deals, including the purchase of Southern California office buildings and the refurbishing of a New York City rental apartment building that is being converted into condominiums.
Goldman Sachs is not alone in this field of lending. Many other financial institutions do the same thing and so Goldman still faces tough competition.
The managing director who oversees RECP II, Peter Weidman, believes that it has advantages over similar funds. He told Bloomberg, “What our investors like about this is it’s a current yield so we’re not just making one-time distributions by securitizing. We have a competitive advantage by focusing on larger deals and being able to provide the entire loan to our borrowers. We see less competition in the larger loan space.”
Goldman Sachs has met with controversy over its real estate lending in the past. It was accused last year of evading the Volcker rule which limits banks to no more than 3% ownership in a private equity portfolio.
Goldman avoided this restriction because regulators tend to exclude real estate loans from it so that Wall Street firms may continue to finance projects with their own money, no matter how risky.