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My firm does a lot of business with them. They offer really competitive proceeds and pricing. They’re a very legit group in my eyes.
They have a cool strategy. From what I have seen they primarily originate very large first mortgages, syndicate the top piece and then hold the resulting B-piece/Mezz tranche(s). I believe they also do some traditional 1st mortgage lending and some SASB CMBS as well. They are raising their 6th fund right now.
Not disagreeing with you, but want to point out that that’s nearly every debt funds strategy.
As an example, AllianceBernstein is one of the few debt funds that doesn’t do that, and they use it as a selling point to differentiate themselves in their marketing materials
What advantage does AllianceBernstein have in not selling the senior piece?
I’ve seen several methods. Some debt funds hold onto the senior piece and either (a) use warehouse leverage, (b) securitize a CRE CLO with a pool of loans (they retain 20-25% of the securitization or the risk retention piece), or (c) some combination of both.
Typically debt fund pricing is highly influenced by their funding source. CLO and Life-co backed debt funds tend to run the cheapest, followed by debt funds with warehouse lines and repo facilities and then followed by balance sheet debt funds (aka hard money).
Examples of each:
CLO: Loancore. Pricing: L+300-500
Life Co BS: Voya. Pricing: L+275-400
Warehouse Line: Readycap. Pricing: L+450-650
Balance Sheet: 3650 REIT. Pricing 10%+
Can you explain what influences the pricing here?
Cost of capital and investor expectations of the fund/capital they're lending from.
Highly agree with the content of this post. All very accurate information.
what does balance sheet mean?
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