Mesa West, Prime Finance Prep Loan Funds

Mesa West Capital and Prime Finance have begun marketing their latest funds, seeking a total of $1.3 billion of equity to exploit surging demand for short-term mortgages.

Los Angeles-based Mesa West has set a target of $650 million. Prime Finance, of New York, is aiming to raise $600 million. The vehicles would write floating-rate loans of five years or less for borrowers looking to stabilize overleveraged or transitional properties.

Itís the third fund for each of the operators, which were among the few high-yield debt shops to raise substantial capital during the downturn. Each exceeded its equity goal on its previous fund.

The bridge-lending business is likely to be brisk in the next few years, as mortgages written at the height of the real estate boom mature. Many of those mortgages are backed by properties that have plummeted in value, and borrowers are apt to need short-term loans to stabilize the properties before qualifying again for permanent financing.

Mesa West Real Estate Income Fund 3 would seek a 12% return, primarily by originating two- to five-year floaters on transitional properties in the Western and Northeastern U.S. The operator writes mortgages of $5 million to $130 million on all property types. A first close is expected during the second quarter.

The firm began marketing its previous fund in mid-2008, at the brink of the recession. Its goal was $400 million, but it raised $614.5 million by the final close in 2010. Mesa West Real Estate Income Fund 2 is now roughly 75% invested, and the remaining capital is expected to be deployed by yearend. Mesa West was founded in 2004 by industry veterans Jeff Friedman and Mark Zytko.

Prime Finance Partners 3 would pursue a 10% return by writing loans of roughly $10 million to $75 million on all property types. It will also consider larger deals. The vehicle would focus on bridge loans, but could also provide mezzanine loans and preferred equity.

The predecessor vehicle set out in 2009, at the depths of the recession, with an equity goal of $400 million. It reached $440 million at its final close in late 2010. Prime Finance Partners 2 is now roughly 95% invested. Prime Finance was founded in 2008 by former Natixis executives Scott Douglass, Steve Gerstung and Jon Brayshaw. It is backed by Prime Group of San Francisco.

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