$250M Fund Targets Western Markets

LOS ANGELES-Washington Real Estate Holdings LLC of Seattle has earmarked $250 million of capital for structured finance deals in a new fund that targets western markets. Craig Wrench, the president and CEO of the Seattle-based lender, developer and investor, tells GlobeSt.com that SVP David Millard will lead the new unit out of the firm's Los Angeles office.

Wrench tells GlobeSt.com that Washington Holdings, which already holds debt on assets in the L.A. area and other West Coast cities, will be looking to originate and acquire permanent and construction loans as well as preferred equity investments, including senior bridge loans, B-notes, second mortgages and mezzanine loans. The company generally lends from $10 million to $50 million; right now, its largest loan is about $60 million and its smallest is approximately $7 million.

Rather than a preference for a particular product type, Wrench says, the company focuses on taking mezzanine or second mortgage positions in deals that are structured at a 70% to 90% loan-to-value ratio. "There is almost always going to be a senior lender that will be ahead of us, and then we would put a second mortgage or a mezzanine loan on top of that, which would represent another 15% to 25% of the capital stack," the Washington Holdings president explains.

The company is open to lending on pretty much the spectrum of commercial properties, but most of the deals it has executed thus far fall into the categories of office, hotels, condo developments and land loans. "We certainly would like to do more lending in the industrial and multifamily arenas, but we just aren't seeing as many opportunities in those product types that meet our objectives," Wrench says.

The structured finance operation is one of three practice areas for Washington Real Estate Holdings. A second practice area specializes in direct equity investments, primarily in office, industrial and condominium projects.

In its remaining practice area, the company buys land and secures entitlements, sometimes developing the property itself and sometimes selling to other developers. All of its practice areas are funded by its main shareholder, a state pension fund.

All of the company's structured finance investments to date have been one of three types: a second mortgage, a mezzanine loan or a preferred equity investment. It's generally looking for returns in the range of 9% to 13%.

Wrench says that the company's has a few deals in parts of the country other than the West as a result of relationships with borrowers, but its main focus has been on the major markets west from Denver. For example, it holds loans on assets in Los Angeles, Northern California, Puget Sound and other West Coast markets.

He cites the company's flexibility as one of its competitive advantages. In addition, he says, "We can underwrite fairly quickly and make decisions quickly."

The company typically holds its loans to full term and has deployed more than $250 million in debt and preferred equity investments. The firm was founded in 2002 by Wrench and Richard Anderson, who serves as the company's COO.