Fund provides exit finance to Specialty Trust

The financial reorganization of a Reno real estate lender has taken a major step forward with an infusion of capital led by a New York City firm that also will work out the assets held by Specialty Trust Inc.

Specialty Trust has been operating under Chapter 11 bankruptcy protection since April of 2010.

Northlight Financial LLC of New York City said last week it completed a $28.5 million exit financing to Specialty Trust. Northlight Financial is a manager of private-equity debt instruments. Some former investors in Specialty Trust also participated in the new financing.

The new capital provides breathing space for Northlight to find solutions for the troubled assets of Specialty Trust. Those assets, Northlight said, include more than 30 mortgages and properties that were taken back by Specialty in foreclosure actions after developers were unable to repay their loans.

Ben Gerig, chief investment officer of Northlight's real estate group, said the company sees "substantial value" in the Specialty Trust assets.

But he said the company also recognizes that a disciplined plan to work out the troubled assets, along with the targeted application of some fresh capital, will play a key role in determining the value of the assets.

Working out the portfolio may take three to five years, said a person familiar with the Specialty Trust bankruptcy.

With the addition of the Specialty Trust portfolio, Northlight manages more than $300 million in commercial real estate loans and real estate assets.

Northlight provided debtor-in-possession financing for Specialty Trust in December. The plan of reorganization that designated Northlight as the manager and loan servicer of the Specialty Trust portfolio was approved by the U.S. Bankruptcy Court in Reno in early June.

Specialty Trust is a privately held real estate investment trust founded in 1997 by Nello Gonfiantini III, one-time president and chairman of Home Federal Bank.

The company raised money from sophisticated investors among them, many of the biggest names in the northern Nevada business community and made high-risk, high-return loans for properties such as raw land in the path of urban development.

Much of the company's lending went to projects in locations such as Las Vegas, Sedona, Ariz., and La Quinta, Calif. As the recession hit particularly hard at real estate markets in the West, developers of those properties were unable to repay their loans and Specialty Trust ended up owning properties that didn't generate any income.

At the time of the company's bankruptcy filing, about 10 percent of its loan and real estate portfolio was in northern Nevada.