A Toronto-based investment firm has launched a new $70-million fund to invest into commercial real estate mortgages in Western Canada, an example of how more capital is being deployed into private credit.
Cameron Stephens Mortgage Capital Ltd. announced the launch of its Western Canada High Yield Mortgage Fund, which is backed by $35 million from Western Canadian real estate family offices and $35 million from the company’s existing flagship fund.
“The [new] fund is now active and committing capital into high-quality commercial mortgage opportunities across Alberta and British Columbia,” said a June 4 press release.
Speaking with BIV, Cameron Stephens chief of staff Pete Housley said the new fund will essentially act as a commercial real estate lender, taking subordinate positions in syndicated mortgages.
For each mortgage, it will provide 10-15 per cent of the loan amount, with the remainder consisting of institutional capital from credit unions and banks. The so-called “B clip” would come with a higher yield expectation and risk-reward premium, he said.
Housley said each investment will be evaluated by an advisory committee of four voting members. After performing due diligence, unanimous consent is required to proceed.
“They get to deploy capital into the fund one deal at a time. They help us put better risk governance into the transaction,” Housley said, adding that deals currently under consideration include industrial and low-rise multi-family.
The 21-year-old company has nearly $4 billion of assets under administration. Its flagship fund, launched in 2004, has delivered net annualized returns of 11.4 per cent since inception, said the press release.
In Western Canada, the company has about $550 million of assets under administration.
“We’d like to grow that to a billion dollars in the next couple of years,” said Housley.
More investors, both institutional and retail, are looking to invest in credit, including in the form of commercial real estate mortgages, said one specialist.
This is in order to diversify their real estate holdings and hedge against inflation and interest rates, said Joshua Sonshine, Toronto-based senior vice-president with CBRE Ltd.
“In the last few years and particularly the last year, we’ve seen what we would refer to as a ‘flight to credit.’ There are more and more investors who are looking to diversify their real estate holdings, not away from equity, but to credit in addition to equity,” he said.
With more investor liquidity eager to enter this space, Sonshine said high-yield funds like those administered by Cameron Stephens provide commercial real estate groups with “a different risk-return economic.”
“Private credit plays a crucial role in the market. It allows owners, operators and developers to achieve their real estate goals, when a bank can’t necessarily provide that solution,” he said.
Specifically, private credit can tolerate different guarantee structures or greater leverage, or can be cheaper than the cost of equity. Compensation generally comes through an initial fee, followed by interest payments throughout the loan period, he said.
“These funds are in every way lenders,” Sonshine said. “Think of it like a bank but privately held.”
