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WASHINGTON, DC-Grosvenor Investment Management has raised $100 million for a fund that is providing mezzanine or preferred equity and co-investment equity to homebuilders that need to capital to get to the now out of reach senior loan level. The first round of fund-raising closed in March and the company is hoping to raise another $100 million, according to David Reiner, managing director of Capital Markets of Grosvenor Investment Management.

Of that money, the DC area is likely going to receive the biggest percentage allocation, Reiner tells GlobeSt.com. “It is a great market with strong fundamentals and we hope to invest 20% to 25% of the capital here.” Cleveland’s Key Bank is a co-sponsor in the fund.

The fund, which hasn’t dispensed any money yet, is focused on 10 markets including New York City, Denver and Los Angeles, but with a heavy emphasis on the Mid-Atlantic. “We are aiming at middle to upper home builders, financing infill projects,” Reiner says. Other than that demographic and investment criteria, GIM is following the same star with this fund that the growing numbers of investors in distressed debt are: finding opportunity in the current capital markets crisis.

“Homebuilders at one time could borrow at 80% loan-to-cost. Now they are lucky to get 55% loan-to-cost.” The point of the fund is to help the developer make that leap to a 65% or higher loan-to-cost ratio. “It is project-by-project financing,” Reiner says. He declines to discuss specific deals but does say that the first project is likely going to be in New York City. “By the end of the first half of the year we will have invested in DC.” He projects that the fund will have invested in at least three DC-based projects by the end of 2008. Taking the homebuilders’ own debt and equity into account, he expects to invest in between $400 million to $500 million worth of projects.

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