In retrospect, launching a real estate investment company in the beginning of March — days before the spread of COVID-19 spurred the first lockdowns — doesn't feel like ideal timing for Beachwood's TurnCap.
With work from home becoming a common standard in today's environment as the pandemic lingers, the broader commercial real estate market is getting hammered as scores of companies revisit their spatial needs and back rent piles up.
Large office spaces and retail centers are facing some trouble amid today's focus on remote work and online shopping. In the law firm world, for example, opulent corner offices may be falling out of style as companies look to trim costs in an uncertain economy.
Yet TurnCap co-managing partner Jon Pinney, pointing to pockets of commercial real estate still holding up well, isn't overly concerned.
"Certain segments of the commercial real estate markets have and will experience disruption due to the pandemic, but several sectors continue to outperform, such as industrial, storage and multifamily," Pinney said. "All markets are cyclical, and TurnCap's diversified fund strategy allows it to target performing segments within the broader commercial real estate market and also find value-add opportunities within all segments."
One of the larger commercial real estate segments still performing relatively well is multifamily housing, something that's been a focus of another Cleveland private equity real estate investment fund run by Citymark Capital that's performing well. The companies have different approaches for their respective businesses, though.
In November, TurnCap marked the first close on its inaugural fund at $25 million, which was collected from management and four total investors. TurnCap has been targeting $50 million for its first fund, which includes a maximum offering of $100 million, according to public filings.
The expectation is TurnCap will raise the remainder of funds to hit its target size in the coming days. So far, the company has committed more than $20 million in capital to five projects that are anticipated to close before year-end.
Pinney, managing partner for Kohrman Jackson & Krantz, has explained that TurnCap is targeting a variety of debt and equity investments but with a focus on less conventional deals such as bridge and mezzanine loans, preferred equity investments, note purchases, debt buybacks and acquisitions out of foreclosure. Its strategy for standing out in a crowded real estate investment market flush with capital is to close deals as quickly as appropriate, possibly within a week or less — hence the "turn" part of the TurnCap name.
The firm launched in partnership with Cleveland-based mortgage banking outfit Bellwether Enterprise. Its management team includes co-founders Pinney, Bellwether president Ned Huffman and Jim Doyle, a Bellwether principal.
At TurnCap's disposal is Bellwether's national origination platform and expertise managing a $32 billion portfolio. Huffman said Bellwether originates $11 billion in permanent loans annually.
He added that while the commercial real estate sector has become a bit choppier in today's economy, the TurnCap philosophy has not materially changed.
"We have seen rent collection pressure with retail and other commercial real estate. However, our first fund is focused primarily on the multifamily market, which continues to perform well," Huffman said. "Our first fund will provide senior bridge debt solutions with a focus on multifamily properties where we are confident a permanent loan takeout will be available after 24 to 36 months. This allows us to underwrite each transaction using the permanent loan takeout outlets Bellwether provides through its extensive agency and life company correspondent network."
Despite the turbulent economy, the pandemic has created capital markets disruption that has opened up other opportunities for TurnCap, Pinney said.
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TurnCap records first close on its debut investment fund - Crain's Cleveland Business
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