Eric Hadar Raising High-Yield Fund
Online, November 2, 2009 (Newswire.com) - Originally published: 04/03/2002
New York property investor Eric Hadar is setting up a unique $100 million investment vehicle that will buy subordinate loans and below-investment-grade commercial MBS and then package the investments into securitizations.
The fund - to be developed through Hadar's Allied Partners - will invest in a mix of high-yield debt, including B-notes (which are subordinate portions of first mortgages), mezzanine loans and the junior classes of commercial-mortgage securitizations.
Then, in a twist that makes it different from traditional mezzanine funds, the vehicle will seek to boost its yields by packaging the assets into collateralized debt obligations and retaining the junior 5-10% portion, which it expects to yield more than 25%.
The still-unnamed fund will be capitalized with $100 million of equity. With the use of leverage, it will boost its buying power to $300 million. Before conducting a CDO, Hadar plans to buy a dozen or so positions totaling about $300 million. The fund would retain the junior $15 million to $30 million of the transaction and recycle the proceeds from the senior part of the deal into new investments. The process would then be repeated.
Hadar and his father, Richard Hadar, as well as his brother, Josh Hadar, have committed a combined $25 million of equity to the venture, while an unidentified real estate family in New York has committed another $25 million. Hadar has hired Carlton Group of New York to raise another $50 million of equity from institutional investors, as well as a $200 million revolving debt facility. An undisclosed manager has been hired to run the fund.
The vehicle is designed to improve on the yields achievable through property acquisitions without assuming significant additional risk. Many stabilized assets sell at prices that provide a 7-8% initial annual yield for the buyer, while the Hadar vehicle is seeking returns of more than 20%. But the fund will finance only up to 78% of a property's value, which provides it with a buffer in the event of a downturn.
The fund will focus on floating-rate loans. The goal is to originate loans across the country on a variety of property types. However, because the principals are all based in New York, there could be a concentration of East Coast assets, at least initially.
Allied owns properties valued at $1.2 billion, as well as a portfolio of high-yielding loans. The firm has invested more than $400 million in bridge and mezzanine loans, distressed debt and B-notes.
Hadar is best know for teaming up with Boston Properties last year to buy the 1.7 million-square-foot Citigroup Center in Manhattan for $725 million.
Carlton is an advisory firm that specializes in commercial and residential loan sales and the placement of debt and equity. The firm has advised on more than $10 billion of transactions since 1998.