Look for smaller funds from newer advisers to put pension fund cash into equity commitments, first mortgages and bridge loans for properties in the four food groups. Two-year-old Mesa West Capital?s follow-on fund to Mesa West Real Estate Income Fund I includes investments from Pennsylvania Public School Employees´ Retirement System and the Los Angeles City Employees Retirement System and will focus on bridge loans. Wilshire Finance Partners is new this year and targets transitional loans as well, though smaller in size. Omega Commercial Finance Corp., meanwhile, looks to take advantage of attractive developments in need of financing.
Both Mesa West and Wilshire Partners want to take advantage of developers in the transitional phase after development. Omega takes developers on even sooner in the process and will provide financing for stalled construction projects and take a participating stake in the completed properties for its troubles.
New start up Wilshire Finance Partners also targets bridge loans and hopes to draw some institutional investors for its first national fund, Wilshire Investment Fund II, targeting $100M to $250M in commitments. The company, where Thomas OBryon and Kevin DeMerrit are fund managers, was launched to take advantage of lending opportunities emerging from banks that do not allow loans to stand on performing assets still being stabilized by developers. So far, Wilshire has acquired commitments from individual investors but would like to work with institutional investors like public and private pension funds. Wilshire will target loans on industrial, office and retail properties; but it will stay away from big-box retail, instead preferring smaller retail properties.
Wilshire targets net annualized returns of 9 percent to 12 percent, with the current return on existing investments at about 10 percent. The fund has an indefinite life, can recycle returns back into the fund and can reopen for additional raises. Investors can pull out either by being bought out or collecting as loans come due.
The adviser came on the scene earlier this year with its initial fund targeting California real estate and Californian investors. Wilshire will eventually target smaller loan originations in the $100T to $15M range for Fund II, but prefers $250T to $1M right now. The adviser provides developers with bridge loans or acquires existing notes on their mortgages from lenders and helps stabilize assets with a line of credit to build out for tenanting. Lately, the adviser has been targeting terms of six to eight months and some of two years, keeping them short with expectations that the market will ratchet up on rates over the next two years, during which it doesn?t want to get locked in with long terms. Wilshire will stay conservative with most loans with LTVs below 55 percent, and can go up to 65 percent for markets it finds especially attractive. While new, OBryon has been in the real estate industry for more than 30 years, handling both investment and operating business.
