Pender Capital sets $1bn fundraising target for rare real estate interval fund

Dallas-based manager is aiming for more mid-market bridge loan exposure across Southern US and flyover states.

Dallas-based manager Pender Capital this week launched a closed-end interval fund with a $1 billion fundraising target to capitalize on private commercial real estate debt opportunities.

The fund’s October 30 launch is aimed toward filling financing voids present in the mid-markets of the US commercial real estate landscape where select lenders – including regional and national banks – have pulled back on lending activity.

Pender chief executive and co-founder Cory Johnson told Real Estate Capital USA the firm is rolling out the Pender Real Estate Credit Fund to open new investment avenues and continue applying the firm’s investment thesis through a continuously offered structure.

Pender, a firm that specializes in short-term, senior commercial bridge loans, plans to use the fund to originate mid-market bridge loans sized $10 million-$30 million with a geographic focus on assets across the Sunbelt and other flyover states.

“For us, it is such a compelling time because obviously with all the banking dislocations that are taking place, whatever you want to fund you can fund,” Johnson said. “We have been a little bit more heavily tilted toward multifamily, storage and industrial just because the secondary markets are stronger there.”

Converting for more opportunities

In April this year, Pender converted the fund from a Regulation D strategy and started the process of retooling it into an interval fund without having to change any of the existing loan portfolio holdings or having to sacrifice the strategy’s existing track record. The interval fund structure – organized under the Investment Company Act of 1940 – has been more prominently seen in the traditional mutual fund landscape and is a relative rarity by comparison in the commercial real estate debt landscape.

To differentiate Pender from other interval fund offerings that may use a fund-of-fund structure for portfolio composition, the firm directly originates debt through the strategy as opposed to investing in other underlying managers making said originations.

Compared to a standard closed-end fund, interval funds are not traded on the secondary market, periodically offer to buy back outstanding shares at net asset value and typically have offered shares for sale daily. The interval structure also carries a lower minimum investment threshold and in Pender’s case, that threshold is $10,000.

All those components featured in the interval structure are being used by Pender to curry more allocations from retail investors via wealth managers and registered investment advisors. Because purchasing shares of an interval fund are simpler relative to a Reg D strategy, what was once a nine-to-12-month decision period for a first allocation has been done as quickly as a six-to-eight-week period even with investment committees at larger allocators.

Historically, retail access to private alternative asset classes such as commercial real estate debt has been limited and at times required investing in the companies operating in the sector as opposed to the assets themselves.

And for Pender, the interval fund structure is believed to be a boost for a business that has found increasing momentum as regional banks cede or share lending ground in local markets. “We have got an abundance of deals to pick from and are using negative selection these days to figure out what we want to put in the portfolio,” Johnson said.

Johnson noted there has been a significant pick-up in direct sponsor business rolling in consisting of equity funds and single-family offices, with a select portion of inbound opportunities coming in on referral from regional bank lenders themselves.

“We spent a ton of time pre-covid really putting our deal team boots on the ground and advancing in some of these secondary markets – for example in Oklahoma City or the Carolinas – where they were maybe not getting as much love from the bigger guys, because that’s just not the markets they really targeted,” Johnson said.