Investcorp sells $100 million mortgage for Coast Guard Headquarters

30 Jun 2010

Investcorp Real Estate, the US-based real estate arm of alternative investment manager Investcorp, today announced that the Investcorp Real Estate Credit Fund (IRECF) has sold a $100 million first mortgage loan backed by the building that has been the longstanding Washington, D.C headquarters of the US Coast Guard, taking advantage of the renewed demand for commercial real estate exposure amongst investors.

IRECF sold the mortgage, which is due in 2014, to the Talos Capital Limited for an undisclosed price. The transaction comes just 15 months after Investcorp acquired the mortgage at a steep discount to its par value. The transaction drew strong interest amongst investors attracted to the transaction in light of the stability of the tenant and the demand for real estate in Washington, DC. Investcorp is considering using the proceeds of the transaction to make a distribution to investors, or make additional investments

“Active portfolio management means that we are always looking for opportunities to meet our investment objectives,” said Jon Dracos, Co-Head of Investcorp’s Real Estate business. “We saw an opportunity to sell this mortgage at a strong profit given investors’ renewed interest in commercial real estate loans and the dearth of quality assets changing hands these days.”

This transaction also helped Investcorp offset uncertainty surrounding the Coast Guard’s intention to renew its lease. The Department of Homeland Security, within which the Coast Guard resides, has indicated that it may consolidate offices onto a new campus.

Investcorp acquired the mortgage on the Coast Guard headquarters in early 2009, “We were fortunate to be a buyer during the market downturn when forced selling by financial institutions depressed prices, even for properties with a secure tenant providing reliable cash flow,” said Chris Sameth, a Principal with Investcorp. “Today, we have a chance to take a very solid profit before we have to consider making additional investments to attract a new tenant when the Coast Guard’s lease expires.”

Investcorp launched the closed-end IRECF in 2008 to purchase performing commercial real estate debt, including mortgages, subordinated debt or so-called “B-notes” and senior mezzanine positions, at a discount. The fund typically looks to hold debt investments to maturity, but monitors opportunities to sell assets ahead of term when market conditions offer a profit to the purchase price. IRECF also holds debt backed by other high quality office properties, hotels and other real estate assets.