(#7206) US, $1bn, fund: NY merchant bank looking to raise $1bn for distressed equity and debt fund

About the issuer: the newly formed fund is a subsidiary of a ~15yr old NY-based merchant bank specialized in distressed CRE debt and equity. Its restructuring group has completed over $8bn in restructurings and recaps from 2007-2014.

Strategy: The strategy is to identify and execute distressed opportunities, both debt, and equity. The new fund will identify different opportunities in each CRE asset including but not limited to:
i) change of use,
ii) operational efficiencies,
iii) branding,
iv) leasing,
v) asset management,
vi) undertake operations, plus
vii) operational reporting.

The new fund will also originate and underwrite each CRE asset providing guidance for:
i) price recognition,
ii) financial underwriting,
iii) capital structuring,
iv) due diligence,
v) closing execution, plus
vi) financial reporting.

Focus: 
i) non-performing loans (“NPLs”),
ii) distressed but performing first mortgage loans (“Loans”),
iii) rescue capital and recapitalizations (“Recaps”) for borrowers,
iv) discounted payoffs (“DPOs”) for borrowers, plus
v) an assortment of first mortgage hard money loans, bridge loans, mezzanine loans, preferred equity, and GP loans.

Return Expectations.
The merchant ban has achieved weighted gross returns above 25.0% before promote and approximately 22.0% post promote. Each strategy has different results. Hard money first mortgages at 55% LTV provide 14% annual returns while DPOs can pay as high as 30.0% returns. NPLs provide approximately 25.0% per annum. All of these are non-leveraged returns. If leveraged at only 35% to cost (not value), yields increase to above 30% in almost every category.