Carlton Rolls Out $300M First Mortgage Facility

NEW YORK CITY-Within the next 30 days the Carlton Group will be rolling out a new $300-million facility aimed at financing or recapping first mortgages. The company is partnering with the principal transaction group of a major investment bank. The name of the fund will be CSV Mortgage Capital.

The fund will complement CSV’s line up funds, which includes a $400 million JV with Prudential Insurance Co. for mezzanine lending and an opportunistic fund through which CSV has acquired $500 million in loans from Wachovia and Merrill Lynch, among other banks. “This new addition to the CSV family of funds is to provide first mortgage capital–which is where we think the greatest opportunities lie right now,” Howard Michaels, chairman and CEO of the Carlton Group, tells GlobeSt.com.

Indeed, there is a dearth of first mortgage capital financing in the market. Deals that are closing right now are being financed through one of a handful of less than attractive alternatives: all cash, or some combination of preferred equity, equity and mezzanine financing. The liquidity crisis is to thank for this of course, a point that Michaels himself makes. “Until the government motivates or forces banks to use TARP [Troubled Assets Relief Program] dollars to make loans we are not going to have a normal, liquid real estate market.”

CSV Mortgage Capital will be targeting transactions of $100 million, providing mortgages of $65 million or less, Michaels says. The average interest rate will be 11% with loan terms for two-years, with an additional one year extension. Clearly, this capital is not for everyone: a typical borrower, Michaels says, will likely be someone who wishes to buy debt back from a lender at a discount or needs to recapitalize.

In 2008, the company closed $4 billion in transactions, Michaels says. Its sweet spot is combining or syndicating capital sources for structured deals–an approach typified by the company’s $630-million recapitalization of the short-term mezzanine debt on 666 Fifth Ave. this summer. In that transaction the Carlton Group arranged a $325-million first mortgage, $135-million mezzanine mortgage and $170 million in equity from a $3-billion opportunistic fund for the property.