California State Teachers’ Retirement System (CalSTRS) has expanded its relationship with US real estate debt fund manager 3650 REIT, participating in a $580m (€471m) fundraise for its latest vehicle.
The $275bn pension fund entered a $500m joint venture with 3650 REIT in 2018 and has now taken part in a first close for Stable Cash Flow II (SCF II).
According to 3650 REIT, CalSTRS made “significant lead investments” in the new fund with “large allocations from both its fixed income and real estate portfolios”.
The company declined to identify other investors or to diclose how much of the $580m had been committed by CalSTRS.
In contrast to the previous CalSTRS joint venture, which provides borrowers with shorter-term bridge loans, SCF II is focused on long-term, fixed-rate debt.
The new fund follows on from the first SCF vehicle, which attracted investment from Sixth Street Partners, a credit investment specialist which was recently spun out of private equity firm TPG.
Co-founder and managing partner Justin Kennedy said 3650 REIT had, prior to the COVID-19 pandemic, been speaking to CalSTRS and other investors about evolving the strategy of SCF to offer an even more stable risk profile.
Although 3650 REIT did not predict the advent of the global pandemic, Kennedy said, “we were anticipating some volatility going into 2020”.
Kennedy told IPE Real Assets: “The existing book performed extremely well relative to the market, and it just so happened – based on our anticipation of some volatility in the market – that ‘SCF 2.0’ was designed for an even greater degree of resilience in volatility – and that has put us in good stead.”
Founded in 2018 by former LNR Property co-CEOs, 3650 REIT pursues a “dual lending strategy”, having closed more than $640m of loans in its bridge and event-lending business and $2.7bn in its long-term, stable cash-flow strategy.
The company has sought to differentiate itself from other real estate debt fund managers, emphasising its ability to manage everything in-house, from origination to loan servicing, from six offices across the US.
It offers 10-year fixed loans, hence the name, which are owned and managed on behalf of institutional investors for the full duration. “For 3650 days we are your lender,” said fellow co-founder and managing partner Jonathan Roth.
“A lot of folks have made a lot of mistakes over the years by outsourcing all those disciplines that go into making an investment decision.
As a lender, the very best outcome is you make a loan, your principal gets returned and you earn the interest you agreed to earn… the only way to mitigate risk is to have the hands-on capability within our own four walls to make those enquiries and decisions.”
Roth said the approach and structure of the business enabled it to perform well during the disruption of 2020. “When you identify a problem early in its gestation there are often multiple solutions to that problem,” he told IPE Real Assets.
“Our structure is designed around constant surveillance, understanding the underlying asset, understanding the underlying marketplace. It is often the case – because we have a large footprint – that we know information about something that will impact a borrower’s property before the borrower does.”