InsightsKAP’s insights on private equity investor relations and fundraising
Blackstone acquires minority stake in Rockpoint; ILPA names new chief; Foreign investors flock to RE debt funds
Blackstone fund buys stake in property firm Rockpoint. Blackstone’s Strategic Capital Holdings Fund, a permanent capital vehicle specializing in acquiring interests in alternative asset managers, is taking a roughly 20% passive equity stake in Rockpoint, a Boston-based global real estate investment management firm. Blackstone’s $3.3 billion pool was raised in 2014 and last summer agreed to a stake in buyout firm Leonard Green & Partners. The Rockpoint deal is the first real estate position taken by the fund. Sales of minority stakes have become increasingly common in recent years, with PE firms selling off interests to grow their business, commit more money to funds and provide liquidity to founders, or some combination of the three. Rockpoint’s opportunistic real estate strategy, which closed on its fifth fund with $3.3 billion in March 2016, focuses on office, multi-family and hospitality properties in coastal markets. Rockpoint also has a $1.4 billion fund that concentrates on lower-risk, lower-return real estate investments.
“This permanent capital investment by Blackstone is a testament to our team and investment programs. It will further strengthen our firm while preserving its entrepreneurial culture.” – Bill Walton, Rockpoint co-founder
IREI’s latest Fund Tracker Trend Watch illustrates that smaller funds dominate numbers, but mega funds dominate capital raised. Real estate mega-funds — those funds raising $1 billion or more — have been growing in size and market share for the past few years. From January 2015 through March 1, 2018, 439 funds have closed with nearly $319 billion raised. Of that, 84 mega-funds have raised $193 billion, or 61% of the capital.
More foreign capital flowing to real estate debt funds. Foreign investors, who have been increasingly active in the U.S. commercial real estate market, are expanding their focus to include debt. The South Koreans were on the forefront of that trend two or three years ago, and that interest has since expanded broadly to include Asian, European and even Canadian investors. Foreign capital is following the broader market shift that has investors allocating more capital to commercial real estate debt.
“Anecdotally, we have been seeing a fairly dramatic uptick in interest from foreign investors into the U.S. lending space over the last 12 to 24 months.” – Ryan Krauch, principal at Mesa West Capital
CAPITAL RAISING UPDATES
Brookfield nears $10 billion for opportunistic real estate fund. Brookfield Strategic Real Estate Partners III is just shy of reaching its $10 billion target after holding a second close on $9 billion. The fund is targeting a 20% gross IRR (16% net) for its global opportunistic strategy. The fund’s predecessor closed on $9 billion in 2016, exceeding its target by $2 billion. The first fund in the series raised $4.4 billion and closed in 2013. The firm has $155 billion in assets under management in real estate and its portfolio spans multiple asset classes around the world.
Emet Capital Management held a first close on $80 million for its second opportunistic fund. Emet Municipal Real Estate Strategy II launched earlier this year with a $200 million target and $250 million hard cap. The fund will invest in distressed debt secured by rental housing assets that qualify for municipal revenue bond financing. The fund’s predecessor held a $126.7 million final close in 2016. Among its early investors is the University of Michigan’s endowment, re-upped their commitment to the firm.
Madison Realty Capital raises $554 million for debt fund. The fourth fund in the series, Madison Realty Capital Debt Fund IV (MRC Debt Fund IV), is a value-added real estate vehicle that will invest in debt secured by properties throughout the U.S. This first close puts the fund more than halfway to their $1 billion target and hard cap. The fund’s predecessor held a final close on $695 million in May 2016, exceeding its $600 million target.
Pennybacker Capital holds final close on $510 million for Fund IV. Pennybacker IV is a value added real estate fund targeting multi-family, office, retail, and industrial assets in sustainable U.S. growth markets. The fund launched in 2016 and exceeded its $400 million target after more than 18 months on the road. The fund’s predecessor closed in 2014 with $322 million of commitments, slightly above its $250 million target.
Garrison Investment Group launches new fund. Garrison European Real Estate Lending Fund I will invest in debt secured by real estate properties throughout Europe. The target of the fund is unknown. The firm is also in market with the fourth fund in its opportunistic/value-add series, targeting $500 million. Garrison Real Estate Fund IV will continue the equity strategy of acquiring, repositioning and selling real estate across property types located in established and growing secondary markets in the U.S.
Jon Gray named president and COO of Blackstone. Blackstone announced that Tony James, president and COO, will be handing over day-to-day management of the firm to Jon Gray, global head of real estate. James will continue in a full-time role at the firm and assume the title of executive vice chairman, reporting to Stephen Schwarzman, co-founder, chairman and CEO. Gray will become president and COO also reporting to Schwarzman. Two long-time leaders in Blackstone’s real estate group, Ken Caplan and Kathleen McCarthy, have been named global co-heads of real estate succeeding Gray.
Rubenstein Partners hires first IR head. The Philadelphia-based firm is building out its capital-raising capabilities for its equity and newly-launched debt arms. Ferhat Guven will join the firm as director of investor relations starting February 1, where he will oversee a team build-out to deepen the firm’s existing investor relationships and broaden its investor network. Guven joins Rubenstein from London-based placement agent Threadmark, where he led the firm’s U.S. real estate activities. Prior to Threadmark, he spent two years as a managing director of investor relations at Jamestown Latin America, a subsidiary of Atlanta-based Jamestown. Guven worked at Paladin Realty Partners for seven years, raising capital in Europe and the Middle East.
Blackstone REIT (BREIT) acquires $1.8 billion Canyon Industrial Portfolio. The Canyon Industrial Portfolio is comprised of 146 last-mile infill warehouses and distribution buildings. The portfolio’s features a strong, creditworthy tenant mix, including Amazon, FedEx, DHL, Coca-Cola, Fiat Chrysler and the U.S. government and is concentrated in Chicago, Dallas, Baltimore, Washington, D.C., L.A. and Florida. With the closing of this acquisition, BREIT’s portfolio totals $7 billion in gross asset value across 272 assets primarily concentrated in 33 million square feet of industrial assets and 17,200 multifamily apartments, with some exposure to hotels and grocery-anchored shopping centers.
LIMITED PARTNER NEWS
Teacher Retirement System of Texas (Texas TRS) allocated $600 million to real estate funds. The public pension committed $300 million to Brookfield Strategic Real Estate Partners III and $150 million each to Almanac Realty Securities VIII and ARS VIII (SC I), both value-added real estate funds managed by Almanac. Texas TRS also provided an overview of their Emerging Manager Program at the February 2018 board meeting. The pension announced plans to launch “EM 3.0” to invest $3 billion over the next three to five years between two broad initiatives ($2 billion managed by GCM Grosvenor and Rock Creek, $1 billion invested directly by TRS with support from GCM Grosvenor.)
Stanislaus County Employees’ Retirement Association has committed $54 million to PGIM Real Estate U.S. Debt. The fund is a value-added, open-end fund that plans to invest in first mortgages based in the U.S. across a variety of property types. PGIM is actively marketing this strategy and expects to raise approximately $2 billion over a three-year period. Stanislaus County currently has $2.1 billion in assets and allocates 7.8% to real estate, below its 9.4% target.
Pennsylvania Public School Employees’ Retirement System (PSERS) has committed $150 million to Almanac Realty Securities VIII. The fund is a value-added real estate vehicle that will make growth capital investments into real estate operating companies primarily in the U.S. The fund has held a first close on $537 million of its $1.5 billion target. PSERS has also committed $100 million to Cabot Industrial Core Fund II. The fund will invest in core industrial properties in the U.S. with a focus on Class A distribution buildings in 12 core industrial markets. PSERS currently has $50.3 billion of AUM and allocates approximately 10% of assets to real estate, below its 11% target.