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Mezzanine debt in seminar spotlight.


MANAMA: Investing in property-backed mezzanine debt instruments in the US offers particularly good returns at present, according to Bahrain-based Investcorp,

The asset management firm specialising in alternative investments, yesterday held a knowledge sharing seminar hosted by Investcorp's head of placement and relationship management James Tanner.

The theme of the seminar was "Real Estate Mezzanine Debt: An Historic Investment Opportunity".

It focused on "mezzanine" finance, which is the debt market in property between equity and senior debt.

"It is an increasingly important source of capital in US commercial real estate acquisitions, development, and refinancings, as well as demystifying the US real estate market by explaining the different characteristics of the US residential and commercial real estate markets," said Mr Tanner.

"In today's illiquid market, mortgage debt is difficult to get, is expensive and comes with very onerous conditions.

"This has increased significantly the demand for mezzanine debt. At the same time, high quality and sound performing commercial real estate assets in distressed situations are becoming available at attractive prices.

"Under such circumstances, investing in commercial real estate mezzanine debt can produce equity-like returns with significant downside protection."

Mr Tanner said that mezzanine finance currently offered the level of return associated with equity finance with the risk outlook of bonds.

Current returns on good investments opportunities were around 10 per cent annually with the possibility of an 18pc yield over the next five to six years.

Investcorp's real estate department has a track record of more than 200 debt and equity investments totaling over $10 billion and more than 100 exits with aggregate value of approximately $4bn.

Investcorp Real Estate Mezzanine Fund I was formed in 2006 and is fully deployed while Investcorp Real Estate Credit Fund I was formed in 2008 and $175 million has been deployed.

It currently has some $600m invested in the mezzanine debt in the US market, the only property market it operates in.

"We favour the US market because of its scale opportunities and the legal redress in Event of possible financial problems associated with the debt bond,." Mr Tanner added.

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Publication:Gulf Daily News (Manama, Bahrain)
Date:Jun 4, 2009
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