RCG Longview Launches Third Fund

June 23, 2004, Real Estate Finance & Investment

RCG Longview has launched its third fund targeting preferred equity transactions and high-yield debt opportunities. The company has raised $292 million in commitments for RCG Longview II, its third fund. Although the company does not lend with the intention of owning the property, its principals have a strong real estate background. “We are able to get our arms around the risks associated with the property we are asked to lend against. We have the comfort that if we have to step into the borrower’s shoes, we have a group that is ready, willing and able to manage the property,” said Michael Boxer, founding partner.

The company believes it is going into the market at an opportune time, Boxer said. “We are living through an era where there is a disconnect as fundamentals decline and prices rise,” he said.  He noted that many investors have acquired real estate at very high numbers on a price per square foot basis and are expecting to make significant leveraged returns. “If rates go up, all of the cowboys who financed with floating-rate debt will get squeezed from a cash flow perspective and will have to raise additional equity to pay down mortgages,” Boxer said. In addition, as an entire generation of CMBS loans comes due over the next 12-18 months, equity holders and property managers may find it more and more difficult to refinance in this environment.

With the prospect of higher rates, the company is making some adjustments to how it structures loans. In the past, RCG Longview has typically been providing fixed-rate loans. Now, it will offer floating-rate loans with a minimum rate of return. “We like to be able to ride the wave up,” he said. “There is enough room to ride rates without impeding cash flows. We don’t want to cripple the property.” The company targets transactions of $3-10 million but has completed transactions as large at $40 million.

RCG Longview originates bridge loans, second mortgages, mezzanine loans and preferred equity transactions, typically targeting cash-flowing assets. It will go down to as far as 85-90% of the capital structure in a transaction if the company’s principals feel strongly about the operator and the real estate. “Generally, we are more conservative than that,” Boxer said. RCG Longview targets office, retail, industrial and multifamily but will look at all sectors.

The company’s predecessor was launched in 1999 when principals from The Feil Organization, Mall Properties and Estreich & Company saw a niche to provide a variety of loans and preferred equity investments. Its first fund, Longview Funding, closed in July 1999 with $34 million in commitments. In 2001, Ramius Capital Group, a limited partner in Longview Funding, merged its real estate lending with Longview Funding to create RCG Longview which closed with $124 million in commitments.