South Carolina Retirement System (SCRS) is investing in Brookfield Asset Management’s latest real estate debt fund.
The pension fund is committing $100m (€88.6m) to Brookfield Real Estate Finance Fund V, according to a board meeting document.
The fund will originate whole loans, syndicate the senior debt to third parties and retain the mezzanine tranches.
The mezzanine piece will typically be in the 60% to 80% loan-to-value part of the loan.
SCRS said it believed real estate debt investments were sensible and defensive given the current stage of the credit cycle.
The market for mezzanine loans has evolved since the global financial crisis, requiring greater volumes of equity, which reduces the risk for the mezzanine lenders. The mezzanine pieces retained by Brookfield will typically be in the 60% to 80% segment of the capital stack.
Most of the fund’s investments will be value-added office buildings, although it will consider other major property types.
SCRS said this strategy means it will not be competing with banks, which are more focused on core and stabilised assets.
Most of the deals will be in major markets in the US, although Brookfield can allocate up to 20% of the fund to other countries.
Brookfield is targeting a total capital raise of $3bn. Its listed subsidiary Brookfield Property Partners is co-investing $400m.
The projected net internal rate of return (IRR) for the fund a is between 9% and 10%.
SCRS has invested in previous Brookfield debt funds. It invested $75m in Fund III and $50m in Fund IV.
As of September 2016, the net IRRs on these investments have been 11.1% and 11.3%, respectively.