11/30/2012

Mesa West Scoops Up Pledges for 2 Funds

Fund shop Mesa West Capital has lined up nearly $500 million of initial equity commitments for two origination vehicles.

The Los Angeles operator held a first close two weeks ago on $380 million of equity for Mesa West Real Estate Income Fund 3, including pledges from Houston Municipal Employees and San Joaquin (Calif.) County Employees. That puts Mesa West on track to reach its overall $650 million goal for that fund by March. The closed-end vehicle is shooting for a 12% return.

Meanwhile, the shop has gotten $100 million of preliminary commitments from two unidentified investors for its debut open-end vehicle, Mesa West Core Lending Fund. Those pledges are expected to close by yearend. The buzz is that another $300 million of soft pledges are in the queue for early next year from investors that plan to tap their 2013 allocations.

The open-end fund will shoot for a 7-8% return. Mesa West began marketing it last year and has set an initial equity goal of up to $500 million.

Both vehicles focus on the origination of loans of $15 million to $150 million, mostly on properties on the East and West Coasts. The terms range up to five years.

Marketing materials for the open-end vehicle state that there is no conflict with the closed-end fund because the vehicles have different investment strategies. The closed-end fund series writes loans on transitional properties. The core fund will write fixed- and floating-rate loans on stabilized properties, with loan-to-value ratios likely hovering around 60%.

Mesa West will use leverage with both vehicles, financing up to 35% of the open-end fund’s portfolio and roughly 60% of the closed-end vehicle’s portfolio. The vehicles will finance mixed property types.

The sponsor was among the few high-yield-debt shops to raise substantial equity during the downturn. The company’s second closed-end fund, Mesa West Real Estate Income Fund 2, closed in 2010 with $614.5 million of equity, exceeding the $400 million target. That followed up the $207.5 million Mesa West Real Estate Income Fund, which was launched in 2006.

The company was founded in 2004 by principals Jeff Friedman and Mark Zytko as a specialty-finance shop. Ryan Krauch, also a principal, handles capital raising.

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