Franklin BSP launches second opportunistic real estate debt fund

The strategy arrives as the firm sees more industrial, construction and multifamily opportunities.

Benefit Street Partners, the credit-focused alternative asset management arm of Franklin Templeton, is launching its second opportunistic debt fund.

The New York-based manager filed initial documents for Benefit Street Partners Real Estate Opportunistic Debt Fund II on July 5. The firm did not disclose a target size for the fund at the time of publication and declined to comment to Real Estate Capital USA beyond confirming the strategy’s launch.

BSP has remained an active lender through the recent market volatility that has sidelined some national and regional banks. As a result, the firm is seeing more opportunities to lend on industrial construction and multifamily construction deals compared to quarters past.

The firm typically focuses its lending activity on floating and fixed-rate loans across all property types with the present exception of large to mid-sized office transactions. BSP’s first opportunistic debt strategy closed in 2022 with $518 million in capital commitments.

BSP’s commercial real estate debt strategy platform currently includes Franklin BSP Realty Trust, a real estate investment trust that primarily invests in first mortgages and loans. BSP also operates an equity strategy, Benefit Street Partners Multifamily Trust.

Speaking at the Commercial Real Estate Finance Council’s Annual Conference in June, BSP’s head of commercial real estate Michael Comparato said he expects the financing markets to get worse before they get better: “I think about the distress coming into the system – office is an animal of its own.”

During the same conference, Comparato noted that BSP was seeing more deals that typically would have been handled by bank lenders. As an example, he cited two $100 million loans in the firm’s pipeline. In both cases, the firm is originating capital for Class A fully leased, high-rise multifamily assets with institutional sponsorship that would have ordinarily been handled by money center banks.

“Those assets should not be in my book,” Comparato said. “I love them, it’s great, but that is not the stuff that I am supposed to be doing.”

Select national, regional and community banks have all notably taken steps back from originating new debt as they look to keep ample liquidity on their balance sheets to avoid troubles akin to San Francisco-based First Republic Bank or New York-based Signature Bank.

This pullback has opened debt market opportunities for new and existing commercial real estate debt strategies – including entrants such as BSP – who will look for distressed and opportunistic deals left unattended by the banking sector.