Goldman Sachs Closes $7B Real Estate Debt Fund To Fill Lending Gap

As competitors retreat, Goldman Sachs has raised its largest pool of cash yet for its latest real estate credit fund.

The Wall Street titan has raised $3.6B from third-party investors for the fund, known as West Street Real Estate Credit Partners IV. The bank is also investing $1.4B of its own balance sheet capital, Bloomberg reported.

The fund has around $2B in leverage, bringing its total lending capacity to more than $7B. It has already committed more than $1.8B, executives at Goldman Sachs told Bloomberg. Bisnow first reported that the bank was raising money for the fund.

The vehicle targets returns of 10% to 12% after fees. Unlike the Manhattan-based investment bank's past real estate funds, this version will expand its reach from just North America and Europe to include Organization for Economic Cooperation and Development countries in the Asia-Pacific region.

Goldman plans to use the new fund to originate, underwrite and hold loans backed by high-quality real estate. The bank aims to make first-lien mortgages secured by properties undergoing a transition, such as refurbishment, reuse or development. It also seeks to provide mezzanine financing related to leased and otherwise stabilized properties.

The vehicle was backed by sovereign wealth funds, insurance companies, pension plans, family offices and the bank's wealth management clients.

The fund comes as other banks have backed away from real estate lending due to fears surrounding valuations, inflation and interest rates. Meanwhile, alternative lenders have increasingly eyed real estate debt, betting on a recovery for distressed property types.

In the first quarter, private lenders originated nearly half of all commercial real estate mortgages, according to CBRE. They overtook banks as the dominant lender to the sector as banks' share of CRE mortgages fell from 41% in Q1 2023 to 23% between January and March.

“The strategy really is to capitalize on what we think is a growing supply-and-demand gap for real estate debt financing,” Richard Spencer, chief investment officer for real estate credit at Goldman Sachs Alternatives, told Bloomberg.

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