Dakota began working with S3 Capital in 2022 to assist with the launch of the S3 Real Estate Credit Fund II.
S3 Capital is a NYC-based private real estate lender specializing in bridge and construction financing for the middle market with a current portfolio in excess of 150 active loans totaling over $1.9 billion.
S3 Capital traces its roots back to Spruce Capital, a private real estate company founded in 2007. S3 Capital was established in 2013 when Spruce recognized a lack of institutional quality, middle market construction lenders in the New York City area. S3 Capital has become one of the most active bridge and construction lenders in New York and has expanded its business to other top tier development markets, including Charlotte, Nashville, and South Florida.
Since inception, S3 has executed over $3.5 billion in financing across over 500 loans between the company’s two areas of focus: “small balance” loans (ranging from $1 million to $20 million) and “large balance” loans, which target the middle market (loans ranging from $20 million to $250 million).
S3 is currently in the market raising Fund II for its large balance loan strategy.
S3 Capital seeks to protect principal while consistently generating attractive risk-adjusted returns through creative structuring and disciplined execution. By leveraging the firm's infrastructure, deep market knowledge, and robust proprietary deal flow, S3 has successfully managed more than 500 loans with zero capital losses.
Fund II for the S3 large balance loan strategy seeks to achieve 12-14% net IRR by originating and managing first lien construction loans between $20 million and $250 million and is primarily focused on multifamily projects in high-growth urban markets.
Fund II has a 5 year term and is structured as a private REIT to deliver consistent income through tax-advantaged quarterly distributions. The S3 Real Estate Credit II LP is targeting $300 million in committed capital and has closed on $165 million to date. S3 will hold a final close at the end of Q3 2023.
S3 Capital's competitive advantage is a result of being a vertically integrated real estate operator rather than a finance company. S3 executes all originations, underwriting, servicing and construction monitoring in-house, which creates a seamless process with significant risk controls.
S3’s founders began their careers as developers, and this experience taught them the importance of construction monitoring and has caused the firm to take a hands-on approach to monitoring all loans. While many competitors solely rely on third parties to monitor construction, S3 utilizes in-house construction professionals in addition to a third party to provide in-depth and real time context to third-party reports. The in-house construction professionals are in constant communication with borrowers, and the firm believes that having open dialogue is essential to identifying and solving potential issues before they become major causes for concern.
S3 continues to see vast opportunity in the current market environment and the supply and demand dynamics in the construction lending space. US banks continue to tighten lending standards for real estate construction financing, which has created pricing power for private lenders with higher risk tolerance relative to banks. The giants in the private real estate lending space focus on deals north of $300 million and do not participate in smaller, middle-market transactions. Additionally, many other lenders lack the in-house resources to efficiently manage construction loans. Demand for construction financing persists throughout market cycles and S3 maintains a robust pipeline of attractive opportunities through its strong brand and deep network of relationships with market participants.
If you would like to learn more about S3 Capital and/or speak with a Portfolio Manager, contact Tim Dolan at (314) 853-0801 or email her at firstname.lastname@example.org.