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July 25, 2018  

Shelter Growth Rolls Out Lockup Vehicle

Real estate debt investor Shelter Growth Capital is prepping the second in a series of drawdown funds less than a year after launching the debut vehicle.

The Stamford, Conn., firm, led by former Goldman Sachs mortgage executive Dan Sparks, aims to raise $200 million to $300 million for Shelter Growth Term Fund 2. Like Fund 1, the new offering would invest in bridge loans and mezzanine debt secured by office buildings, shopping centers, warehouses and other types of commercial properties. Fund 1, which closed on $251 million of commitments late last year, already is almost fully invested.

Shelter Growth manages $2.3 billion overall, mostly via a hedge fund called Shelter Growth Opportunities Master Fund. That vehicle, which invests in commercial mortgage securities and whole loans, has posted solid returns including gains of 8.7% last year, 12.6% in 2016 and 51% in 2015. Year-to-date, the hedge fund was up 3% at the end of June.

Shelter Growth’s lockup funds are positioned to meet increasing demand for bridge loans and mezzanine financing as some $700 billion of U.S. commercial real estate debt matures in the next two years. According to a marketing document for Fund 2, the strategy is designed to deliver unlevered returns of 5-9%, translating to double-digit net returns with leverage of up to one-time equity capital.

Fund 1 generated a 6.7% annualized return during a nine-month “ramp period,” the marketing document shows.

Fund 2 would have an 18-month investment period and a term of five years from the initial capital call, with a one-year extension option. The manager plans to hold a first equity close sometime in the fourth quarter, with the possibility of a second close in early 2019.

Like Fund 1, Fund 2 would charge a 1.25% management fee, or 1% for commitments of $50 million or more. Existing limited partners would pay 1% regardless of the sizes of their investments. The fund also would charge a 15% performance fee above a 6% hurdle.

Sparks, who serves both as chief executive and chief investment officer, founded Shelter Growth in 2014 with chief financial officer Kevin Gasvoda and senior portfolio manager Justin Mahoney — both of whom worked with Sparks at Goldman. Sparks spent 19 years at the investment bank, including a stint as head of the mortgage unit.

Shelter Growth leverages its investments in part through securitization. Last week, the firm priced its first commercial real estate collateralized loan obligation, issuing $420 million of bonds backed by 19 floating-rate loans on 23 properties.