Kawa Capital Managementis expanding its commercial real estate lending platform, seeking to originate a diversified loan portfolio including so-called out-of-favor asset classes and projects in all stages of an asset’s life cycle in select markets.
The Miami-based manager aims to deploy between $75 million and $150 million in loans backed by institutional properties owned by well-capitalized sponsors at spreads ranging from 500 to 1000 basis points, with the goal of moving quickly and offering flexibility based on the complexity of the project, said Michael Corridan, managing director and co- portfolio manager of the fund.
Kawa sees this strategy as a way to capitalize on themes it sees in the debt markets right now, including a retrenchment from traditional lenders, and aims to deploy this capital over the next six to 12 months. “We are looking at first lien positions within gateway or top 20 MSAs,” Corridan said. “A year ago, these sponsors would have been able to get bank loans but today, it’s a different story. We see room to get equity-like returns at do-no-harm leverage levels.”
The manager plans to selectively leverage its positions and will typically originate two-year loans with two one-year extension options. That said, Kawa could recycle capital if it takes shorter-term positions. In all, this means the firm will originate about 10 loans totaling roughly $350 million to $400 million. All of the firm’s loans will be financed on a match-term plus basis, with make-current and right-to-cure provisions. “We will also have participation pieces as a way to manage concentration,” Corridan added.
Kawa’s strategy includes working with its network of sponsors and intermediaries to source opportunities in three segments of the market. The manager will look at out-of-favor asset classes like for-sale condo inventory, office, and hotel loans. It will also continue to be selective in originating for-rent residential construction loans and has a third bucket for special situation-type financings, including secured corporate financing or financing non-performing loans.
“This is really a continuation of our business and our plan to scale our private credit and commercial real estate vertical,” Corridan said, adding the firm sees room to originate loans in the higher end of the middle market. “We are between the mega-funds that are now struggling to recreate historical relative returns and the wildcat shops that don’t have the same sourcing or financing capabilities that we do. And with dislocation from traditional capital providers, we’re looking to exploit those inefficiencies.”
The firm has originated, structured or acquired almost $500 million of commercial real estate whole loans or mezzanine loans since 2010 and last year brought on Corridan from Citigroup to expand its lending capabilities.