Investors have responded with speed and enthusiasm to the new Wien & Malkin Strategic Capital fund. As this edition of the Wien & Malkin Real Estate Investor went to press, the final total raised for the partnership looks like it will exceed the fund's original $15 million dollar announced target, and the first investment is well into the negotiation stage.

In the spring issue of Real Estate Investor we reported that a program was in development "to provide our investors with a new opportunity...to take advantage of what we perceive as a potential to profit by providing structured financing to real estate entrepreneurs." Investors immediately began inquiring about the program, and the Strategic Capital fund was successfully introduced a few weeks later.

"The response is a very gratifying vote of confidence in our family's ability and commitment to create opportunities to serve the interests of our investors," says Wien & Malkin Securities' Peter L. Malkin. "This fund is a new avenue in our ongoing investment program," Mr. Malkin explains. "We set forth the opportunity we see in a profitable niche by addressing an under-served segment of the capital markets. Investors, comfortable with our proven ability to execute, have embraced the Strategic Capital initiative."

Different from Wien & Malkin's familiar single-asset equity partnerships, which typically buy a property with high valued-added potential for long-term growth, the Strategic Capital fund will create a portfolio of preferred equity or mezzanine debt positions with qualified real estate entrepreneurs in need of short-term capital for a strategic purpose.

"We are taking advantage of a market inefficiency by bridging the gap between traditional senior mortgage financing and equity," says, Anthony E. Malkin president of W&M Properties, the acquisition management and marketing arm of the Malkin family. "There are still many opportunistic investors who seek to acquire assets or to exit or restructure current partnership arrangements and thereby require non-traditional capital for deal structuring. The Strategic Capital fund will enable them to realize a project's full potential while minimizing dilution of their ownership and control.

"We expect most of the investments we will make will have two to four year holding periods," says Mr. Malkin. "That is enough time for entrepreneurs to create the value necessary to pay us our return and return our capital to us, and we will maintain some long term ownership positions in the fund."

"The Strategic Capital fund is filling a vacuum and part of our job is to get the word out and find entrepreneurs with interesting ideas," says George Perry, W&M Properties' senior vice president in charge of acquisitions. "We are adding a new type of capital source to the marketplace."

W&M Properties has launched a thorough outreach program making use of its extensive network of brokerage, owner/developer and institutional contacts, supplemented with advertising and the issuance of news releases aimed at those targeted groups. The Strategic Capital fund will make investments in the range of $1.5 to $5 million, investing either directly or as a participant with other investors.

Among the investment criteria, Mr. Perry says, is the desirability of owning a particular property outright if the equity partners or borrowers should fail to meet their obligations. "One of the advantages of four generations of ownership and operating experience is that we can make a more informed investment decision."

"We continue to evaluate properties to acquire for long-term ownership for single entity offerings," Peter L. Malkin emphasizes. "But we saw a great chance to serve our investors in this new structure and look forward to doing so."