WASHINGTON, DC–Miami-based Pensam Funding's original focus was to invest equity into multifamily real estate assets. That focus was forced to broaden, though, as cap rates compressed over the years. The company has launched a number of strategies all with the goal of achieving certain return targets and hurdles for its investors, Ray Cleeman, head of capital markets tells GlobeSt.com. “There are ways for us to play in different parts of the capital stack that help us achieve the returns that our investors are seeking.”

One of those ways has been to invest in Freddie Mac's K-Certificates. It is a new investor to Freddie Mac having only acquired two B pieces in the last year. That makes its perspective interesting — Freddie Mac has a stable of regular investors but it is also always trying to expand its investor universe. Also, as with any investment, the B piece is traditionally the riskiest tranche. Cleeman offers some insight into why an investor would want to take on that risk, at least with the GSE.

First, it is important to understand that Pensam Funding is not a buy-to-trade firm — it takes a long-term view of its investments of ten years or more. “Some of our competitors have to buy and sell within two, three years whereas we don't have that pressure on us.” That said, following are the reasons Pensam has entered this space, according to Cleeman.

1. The security. There is a very high hurdle to becoming a borrower under the Freddie Mac program and then every asset you buy as a borrower also has to qualify. “That gives us a level of confidence because the sponsors are very vetted, qualified and experienced real estate owners. They are not going to let their properties get taken back or go sideways from a mortgage.”
2. The competition. Anyone who buys a piece of a K-Deal has to have the competency and capacity to perform due diligence on a very large pool of assets. That naturally limits how many investors can actually invest in the program. The typical pool has on average 60 to 65 properties and the investor has to underwrite every single loan in the pool. It is very time and resource intensive.
3. The monitoring. As a directing certificate holder of the debt pool, Pensam receives regular reports on what is happening at a property level. If a sponsor wants to sell their loans, or wants to make an amendment or change, Pensam gets to analyze and approve that decision.
4. The control. As a B piece holder, Pensam guides what happens to the entire debt capital stack. Freddie Mac looks to these investors to help identify where a potential problem might arise and then hopefully marginalize any risk.
5. The decent return on investment. Pensam is compensated for the tremendous amount of work upfront buying the security and the ongoing commitment.

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