Investors - JUNE 12, 2014

New Mexico commits $75m to real estate debt

by Reg Clodfelter

The $19.2 billion New Mexico State Investment Council has committed $75 million to the Brookfield Real Estate Finance Fund IV, a real estate debt vehicle sponsored by Brookfield Asset Management that invests domestically.

“Brookfield is a core manager in our stable with whom the council has placed multiple investments,” explains Charles Wollmann, director of communications with NMSIC. “Aside from their very good past track record, the council has found their high level of financial commitment to their own funds to be a good alignment of interests with our own.”

BREF IV launched in March 2014 with an $850 million fundraising goal and will originate new loans to commercial real estate borrowers for acquisitions and refinancing with a focus on higher-yielding loans. The fund will target the 60 percent to 80 percent LTV tranche, aiming for high current returns while still maintaining an equity cushion. It will invest in a wide variety of property types but is targeting a sector allocation breakdown of 40 percent office investments; 40 percent retail, multifamily and industrial investments; 10 percent hospitality investments; and 10 percent other property types.

Loans originated by the fund will predominantly be structured with LIBOR-based floating-rate current pay coupons, and, in general, the debt investments will be subordinate to a third-party first-mortgage lender, with the fund providing sub-debt in the form of a mezzanine loan subject to an inter-creditor agreement. Brookfield will often hold investments to maturity but will reserve the option to sell investments prior to maturity if it presents an opportunity to obtain maximum value.

NMSIC has a long-term real estate allocation target of 10 percent and an interim target of 8 percent. Currently, it is deployed at approximately 7 percent, though inclusive of the Brookfield commitment and all existing unfunded commitments, NMSIC’s real estate exposure is approximately 9.5 percent.

As of Dec. 31, 2013, NMSIC had a sub-allocation to noncore investments of approximately 44 percent, within the target range of 30 percent to 60 percent, and is anticipating approximately $158 million in new noncore tactical commitments in 2014 to maintain appropriate exposure to the investment targets set by its real estate investment policy.


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