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Goldman Invests In Colony Debt Fund Hit By COVID, Gets 10% Return


Mortgage REITs are proving a fertile ground for investors that have raised capital looking for value-add and opportunistic investments that might emerge as a result of the coronavirus pandemic.

A fund managed by Goldman Sachs has announced a $200M financing package for Colony Credit Real Estate, in a deal that could see a further $29M of capital put forward. 

Goldman Sachs Vintage Real Estate Partners II made the initial $200M preferred equity investment in five U.S. investments owned by Colony Credit, a mortgage REIT with $4.2B of assets that includes senior debt, mezzanine loans, preferred equity, CMBS bonds and co-investments.

In its second-quarter earnings call earlier this month, Colony Credit said the preferred equity was provided against four investments in development projects it had made and one investment in a logistics facility. The developments are all being undertaken by other Colony funds, but it did not disclose the projects.

On the earnings call, Colony Credit Chief Operating Officer Andrew Witt said the financing amounted to 52% of the value of the investments. He said that Goldman would receive a 10% preferred return on its investment and a share of future cashflows from the schemes. 

Like other mortgage REITs, Colony Credit was hit early by the impact of the coronavirus crisis. Its shares dropped more than 80% in March before recovering to stand at about half of pre-pandemic level, as investors worried that it would incur losses on its loans and that lenders to the fund might withdraw their debt facilities.

The company has been selling assets, repaying debt and extending credit lines in order to improve its liquidity. In second-quarter results, it said it had doubled its available liquidity in the quarter to $525M and reduced its debt by $375M. 

Colony Credit has impaired the value of some of its loans but said that during the quarter it received 99% of the interest it was due and 96% of the rent due on its equity investments. 

Earlier this year, Starwood Capital provided $325M of new equity for TPG RE Finance Trust, another mortgage REIT that needed to improve its liquidity.

Goldman raised $2.75B of equity for Vintage II fund earlier this year and said it saw good opportunities from providing preferred equity to firms needing liquidity as a result of the pandemic. 

Bisnow is holding a webinar looking at where the smart money is heading at 1.30pm UK time on 27 August. You can sign up here.