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Prospect Capital's Foray Into Real Estate

|Includes: Prospect Capital Corporation (PSEC)

BDC Reporter: Prospect Capital announced today 3 additional multi-family investments in it's real estate subsidiary, continuing a new investment initiative launched a few months ago. Management has not been very forthcoming about this new venture, which bears some resemblance to American Capital's much more well known and much broader asset management business. Prospect may eventually take their internally grown Real Estate Investment Trust public. All we know for the moment is that Prospect has acquired a number of garden apartments around the south-east, attracted by the current yield characteristics of this type of real estate asset.

Does Prospect Capital's management have the expertise, capital and vision to build a real estate empire alongside the traditional commercial lending which remains the bulk of the Company's business ? Only time will tell.

Prospect's management has always been more idiosyncratic in their investment strategies than the average BDC. Remember the frustrating, failed attempt to grab Allied Capital away from Ares Capital a few years ago. Also controversial is their capital raising policy. To the frustration of many investors and analysts, the Company continues to be continuously raising capital without any evident improvement in earnings per share, but ever increasing management fees. Whether this real estate venture, which we will guess will absorb a couple of hundred million dollars at least before we see what happens next, will benefit only management or will help shareholders, remains to be seen.

Disclosure: I am long PSEC.