Goldman raises $3.6B for real estate credit fund

Goldman Sachs' alternatives business raised $3.6 billion for its latest real estate credit fund, giving it firepower at a time of market dislocation.

That figure eclipses the roughly $2.6 billion that Goldman raised from third-party investors for a predecessor vehicle, and marks the largest pool of capital the firm has amassed for this purpose.

Some banks have pulled back from commercial real estate lending, leaving certain landlords struggling to secure financing in this day of higher interest rates.

"The strategy really is to capitalize on what we think is a growing supply-and-demand gap for real estate debt financing," Richard Spencer, the chief investment officer for real estate credit at Goldman Sachs Alternatives, said in an interview Monday.

The bank is also investing $1.4 billion of balance sheet capital alongside the fund, known as West Street Real Estate Credit Partners IV. That will be amplified with about $2 billion in leverage, giving it more than $7 billion in lending capacity, according to people with knowledge of the matter who asked not to be identified. The vehicle is targeting returns of around 10% to 12% after fees, the people said.

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The new fund will seek to originate, underwrite and hold loans backed by high-quality real estate, Spencer said. Through the vehicle, Goldman will aim to make first-lien mortgages secured by what it describes as "transitional" real estate, or properties undergoing refurbishment, a change of use or even development. The fund will also seek to provide mezzanine financing related to leased and stabilized properties.

The vehicle has already committed more than $1.8 billion, said Spencer and Jim Garman, global head of real estate at Goldman Sachs Alternatives, without providing specific details on those investments.

Goldman's new fund will be able to invest in Organization for Economic Cooperation and Development, or OECD, countries in the Asia-Pacific region, a broader remit than its prior fund's focus on North America and Europe. It'll concentrate its efforts in the region on Australia, in part because of the country's strong creditor protections as well as regulatory pressure on standard lenders to reduce risk, Spencer said.

The firm, which has provided commercial real estate loans in cities such as New York and Paris, may concentrate on lending against residential, industrial, hospitality and select office properties that are benefiting from shifts in technology, demographics and sustainability, Spencer said.

Sovereign-wealth funds, insurance companies, pension plans, family offices and wealth-management clients backed the vehicle, according to the bank, which declined to provide more details.