Lone Star Begins Raising $5 Billion for Property Fund

Lone Star Funds, the distressed real estate investor led by founder John Grayken, has begun raising a new property fund with a target of $5 billion.

The Dallas-based company has started seeking pledges for Fund VIII, with initial commitments scheduled for completion at the end of February, said Anthony Breault, senior investment officer for real estate at Oregon’s pension fund, one of Lone Star’s largest backers. The state plans to decide in the next few weeks whether to invest, he said.

“The decision is primarily a staffing allocation and time consideration,” he said in an e-mail. “I expect Lone Star will be able to achieve the targeted fund raise, given enough time.”

Lone Star, which buys financially distressed assets to restructure and sell at a profit, has been making purchases in the U.S. and overseas. It agreed last month to buy commercial properties from the German government valued at about 1.1 billion euros ($1.4 billion) including debt, and earlier today Dutch property company Wereldhave NV (WHA) agreed to sell all of its U.S. real estate to Lone Star for about $720 million.

Lone Star is replenishing capital after investing most of the $4.6 billion in Fund VII that it finished raising in July 2011. The fund’s investments included single-family home loans and corporate debt.

Jed Repko, a spokesman for Lone Star at the New York-based public relations firm Joele Frank, Wilkinson Brimmer Katcher, declined to comment.

Simultaneous Fundraising

Lone Star previously raised two funds simultaneously: Fund VII, to focus on residential loans and property lenders, and Real Estate Fund II, for commercial assets. Fund II finished raising $5.5 billion in May 2011, a person with knowledge of the situation said at the time.

Investors expect Lone Star to start raising a successor to Fund II when the current fund has invested more of its money, Breault said.

The plans for Fund VIII were reported last week by Private Equity International.

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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