WASHINGTON, DC-After launching in 2007 with an eye toward acquiring distressed assets, Grosvenor Residential Investment Partners I--a $100-million fund launched by Grosvenor Investment Management and KeyCorp Fund Management Group--is nearly halfway invested at 45%. However, it had to adjust its focus slightly to get to this point.

The fund’s original intention was to acquire distressed assets--and indeed, it has acquired some. However, with the number of such deals less than expected, the fund has shifted to a hybrid approach, David Reiner, managing director of GIM, tells GlobeSt.com. "The super majority of our acquisitions have been either defaulted notes or foreclosed assets from banks, such as finished lots or partially developed land. But we have been willing to consider other deals as well."

More recently, the fund provided a $3.9-million mezzanine loan for the acquisition and development of a 1.7-acre infill parcel located in the City of Fairfax, VA. The borrower, Madison Homes, was one of eight bidders ultimately selected by the city to redevelop the property into residential homes.  

The fund also provided a $5-million senior loan for the acquisition and development of 32 single-family lots located in Newcastle, WA, which is approximately 13 miles from Seattle. The borrower is American Classic Homes. 

These deals--and the one in Fairfax, in particular, he says--were highly sought after transactions. "Definitely it was not a distress situation." The fund has about $50 million in equity, which can be extended further with leverage, Reiner says. "We have chosen not to leverage substantially but we do have the ability to use the fund as mezz financing or as preferred equity financing. In other cases we can, for example, acquire underlying ground assets without leverage and then used leverage on construction side." Reiner says the company has structured such deals in many cases.