Carlyle Group LP is making inroads with its lending business.
The Washington-based firm has agreed to provide a US$225 million senior secured loan to Canadian homebuilder Empire Communities Corp., Mat Feldman, a Carlyle managing director, said in an interview. The financing is designed to support the company’s growth in both Canada and the U.S.
“We’re providing a bridge to their next stage of growth,” Feldman said of Carlyle’s role as an alternative-capital provider to Empire. “The company should be able to borrow from public markets in the future.”
Feldman said Carlyle views legislation designed to cool overheating in the Canadian housing market as necessary and part of their investment thesis. “Legislation should temper speculation, but ultimately the structural lack of supply and long entitlement processes will return the market to balanced growth,” he said. Sales of detached homes have slowed since the government introduced new rules intended to tame runaway prices, viewed by many as unsustainable.
Closely held Empire, which started in 1993 and takes an energy-saving approach, has built more than 10,000 homes. This includes both low-rise and high-rise condominium projects, mostly in southwestern Ontario and greater Toronto. In the U.S., the company has owned properties in Florida and currently has some properties in Texas.
In the low-rise market, Empire mainly competes with Mattamy Homes Ltd. and Brookfield Residential Properties Inc., an arm of Brookfield Asset Management Inc. For high-rise condos, there are a larger number of players, including Tridel Corp. “The fragmented nature of the market has allowed the company to grow its platform strategically and organically over time,” Feldman said.
The investment is one of the first from Carlyle’s Credit Opportunities Fund, which focuses on complex transactions that require highly tailored financing. It includes tailored covenants that provide protections for the firm, with flexibility for the company to grow its business. Carlyle is raising US$2 billion for the fund, website AltCredit has reported. A Carlyle representative declined to comment on the fundraising because it’s not public.
Carlyle has made it a strategic priority to expand its credit business, an area where it lags behind rival alternative-asset managers such as Apollo Global Management LLC and Blackstone Group LP. The firm’s credit arm had US$33.8 billion of assets under management, compared with Apollo’s US$165 billion and Blackstone’s US$140 billion, as of March 31.