Timbercreek lays out strategy for new North American debt fund

The Timbercreek North American Mortgage Fund will go long on short-term deals.

Timbercreek Capital, which last month announced the launch of an open-ended North American debt fund, is committed to short-term lending for the long haul.

The Timbercreek North American Mortgage Fund will be geared toward shorter term mortgages, with a focus on multifamily developments in core US markets.

“What we are focused on is short-term projects and lending opportunities, two- to five-year floating rate money,” Patrick Maroney, director of originations at Timbercreek, told Real Estate Capital USA. 

The firm is joining forces with a major Canadian institutional investor for the offering, which is a successor to a smaller close-ended fund the firm launched that focused exclusively on the US. With interest rates and prices rising fast, now was the right time to focus on a nimble, open-ended strategy which can quickly respond to rapid market changes, Maroney said.

“With the open-ended nature of the vehicle, [it] should allow us to cycle through and really just continue to grow and diversify the book,” Maroney said.

While the fund will invest in a diverse array of sectors, multifamily will be a priority. Average rents have more than eclipsed rising inflation, and Maroney does not expect rising rates to slow growth substantially.

“Do cap rates rise as a result of the cost of debt going up? Generally, yes. Historically, that’s proven itself out,” Maroney added.

The fund will try to avoid distressed assets and complex refinances, and will cautiously invest in troublesome sectors like office. WIth office properties, whether an acquisition or a refinancing, the firm would prefer to see some cash flow.

“For office, it is going to be selective, but by no means do I think that is an asset class that  we will not be doing. We’re going to be underwriting it a little bit more carefully,” Maroney said.

Most importantly, the fund’s open-ended nature does not mean open-ended capital deployment for specific projects. Each financing will be highly targeted and fairly short term. “We’re not looking at setting aside permanent capital for 10,15, 20 year durations. That’s just not not our focus,” Maroney said.