HARTFORD-Real estate investment advisor Cornerstone Real Estate Advisers has taken its “club” approach to a new level. In an effort to capitalize on prime commercial real estate in primary markets, the firm -- an indirect subsidiary of MassMutual -- closed its enhanced mortgage fund after raising $315 million from a specific group of domestic and international investors.
The fund, designed in the “club concept” fashion of fewer, select investors, is an opportunity where the firm took advantage of the “aggressive pricing” in core real estate, company CEO Robert F. Little tells GlobeSt.com.
“In terms of the strategy itself, what we are really trying to do here is make first mortgage loans on very high-quality properties with very strong sponsors, that, through some means or another, suffered through the financial downturn, that was typically occupancy related, or, they were overleveraged,” he says.
The fund, according to Cornerstone, seeks investments with strong sponsors, locations and business plans over a two-to-five year period. Yields will be achieved through a combination of fees, current coupon and potential upside in participation, Little says, who also serves as portfolio manager.
“We are seeing opportunities come forward in properties that have been sold and fresh equity has come in, or perhaps there was a discounted payoff in the history of the property at some point with a former lender and the basis has been re-set to a more attractive market level,” he says. “In each case, there has been a one-to-three-year business plan in place to re-stabilize the underlying cash flow of these properties.”
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In addition to the $325 million raise, Cornerstone also received a mandate from an institutional investor in 2011 for a $200 million separate account based on a familiar strategy.
Back in 2010, Little says the firm raised a core first mortgage fund that was meant to be 60 to 65% loan-to-value and below. “We heard a couple themes pretty consistently, one of which was higher yield will be of interest to us, particularly to us a year or two ago,” he says. After evaluating a dispersed limited partnership with 30 investors all with disparate interests, he says taking an approach with “like-minded” investors is the best way to go.
“It is nationwide, and obviously as we think about executing business plans, we want to do that in markets and submarkets that have relatively strong economic momentum,” he says.
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