|Sterling Mortgage Income Fund
Affiliated with Slate Asset Management, Sterling Global Financial is a global alternative asset management company focused on real estate, infrastructure and financial services. With a team of 60 real estate development specialists with extensive debt and restructuring experience, the managers prioritize their investment decisions on first protecting capital and second, creating a constant, stable income stream through a highly curated real estate loan portfolio. They focus on property types that have proven resilient in good and bad economic conditions, such as the residential sector (both multi- and single-family), and on geographic regions in which they have on-the-ground connections and firsthand expertise.
Last year, as a sector, REITs were dramatically hit by head line news in the first two quarters. Expecting that the rebound would be significant in comparison on the other side, the fund managers saw this as an opportunity to rebalance the portfolio with a focus on the residential, industrial and manufacturing space.
Market volatility is anticipated throughout 2021. In response to the uncertainties, banks and traditional lenders are retrenching with stricter underwriting standards. This creates unprecedented opportunities for bank alternative lenders like Sterling. They currently hold a strong cash position and are investing in high-growth regional markets. The heightened activity management is observing in real estate development suggests considerable optimism that better times are ahead of us. In particular, they are seeing numerous opportunities in the U.S., as well as Canada and the U.K., that fit with their risk management and profitability outlook. They will continue to closely monitor potential economic headwinds, including scenarios in which levels of monetary support from governments fluctuate in the years to come.
Here are some portfolio transactions of note:
Montage Cay Resort & Marina - located on a private island in the Bahamas. The team entered into this deal in March 2020. They will be part of the the development and management of this $352mil project with an expected return of 20%.
Management is seeing high demand for Caribbean residential properties as individuals around the world examine how they want to live during and after COVID-19. The demand far outweighs the supply, leading to development opportunities.
Greater Boston - A four story apartment building in Cambridge Mass., this is a $5.5m loan with a targeted expected return in the mid-teens.
Brentford, UK - Located 6 miles from the centre of London, this is an office building being converted into residential housing. The fund is providing a £4.8mil bridge loan with a target return in the mid-teens.
The team expects to see more office space to residential conversion projects going forward. While they anticipate a shrinkage in office space, this real estate sector will survive, but at a slower pace for new builds.
Throughout its history, the Fund has proven to be a powerful diversifier within investor portfolios and a provider of robust income in all economic conditions. Annual targets are set for a 7% dividend yield along with 10% capital growth net of fees. This alternative credit investment allows us to pick up yield for the income portion of our portfolios.
To find out more about the Sterling Mortgage Income Fund, the 2020 Management Report can be found here: