Lone Star Funds, the biggest buyer of delinquent mortgages, is leading the fundraising pack for real estate private equity with a $6 billion target for a pool to buy distressed commercial-property debt and equity.
The firm, based in Dallas, plans to begin gathering pledges for Lone Star Real Estate Fund III as early as this month, John Grayken, the company’s founder and chairman, said at a meeting with the state of Oregon’s pension trustees in May. Lone Star is seeking as much as $6 billion, according to Anthony Breault, interim senior real estate investment officer for the Oregon State Treasury, a longtime investor in Lone Star funds.
Lone Star is among firms including Carlyle Group LP, TPG Capital and KKR & Co. that are seeking more money for real estate and capitalizing on investors’ search for higher returns as 10-year Treasury notes hover around a 2.2 percent yield. Blackstone Group LP last year collected $13.3 billion of pledges for the biggest-ever private real estate fund.
“Fundraising is still quite difficult out there, but Lone Star has a longstanding track record of success in raising large amounts of capital,” said Steve Coyle, chief investment officer for global private real estate opportunity strategies at Cohen & Steers Inc. (CNS) in New York. “I would expect them to be one of the winners.”
Lone Star last month finished raising a residential-focused real estate fund, Lone Star Fund VIII, with $5.1 billion.
Jed Repko, a spokesman for Lone Star at the public relations firm Joele Frank, Wilkinson Brimmer Katcher, declined to comment on fundraising.
Carlyle, the world’s second-biggest manager of alternative assets, is seeking to raise $4 billion for its seventh real estate fund, the Washington-based company’s biggest-ever property fund, a person with knowledge of the plans said last week. Randall Whitestone, a spokesman for Carlyle, declined to comment.
“We’re suddenly seeing a lot of the large mega-funds back in the market,” Coyle said in a telephone interview. “It’s a good point in the cycle. People still see distress, and opportunistic real estate is a place where a lot of folks think they can make money.”
The Lone Star target was first reported yesterday by real estate news service PERE.
Larger firms with established track records probably will have an easier time raising capital from limited partners, or investors in their funds, Breault said.
“LPs are somewhat risk-averse still,” he said. “Those seeking opportunistic investments will rely very heavily on past performance. It’s much more competitive for the smaller firms without the same track record or name behind them.”
Even some large firms have struggled as investors flocked to more predictable income-producing real estate after the credit freeze drove down property values. Morgan Stanley (MS), the biggest property investor among Wall Street banks before the financial crisis, is trying to raise $1 billion to $3 billion for a new global real estate fund, two people with knowledge of the effort said in May.
Morgan Stanley is seeking a large contribution from China Investment Corp., which owns 6.4 percent of the New York-based firm, one of the people said.
Matt Burkhard, a Morgan Stanley spokesman, declined to comment.
The new fund would be Morgan Stanley’s eighth for global real estate. Morgan Stanley is betting the profitability of its current real estate fund, a $4.7 billion pool raised in 2010, will help it win pledges from investors, one of the people said.
KKR, the buyout firm run by Henry Kravis and George Roberts, has begun marketing its first fund dedicated to real estate investments with an initial $500 million committed to the pool. The firm committed a significant amount of its own money to put investors at ease as it geared up to pitch the fund to additional limited partners, a person with knowledge of the matter said in March. KKR hadn’t set a target for the fund as of March, the person said.
Kristi Huller, a spokeswoman for KKR, declined to comment.
TPG Capital, founded by David Bonderman and James Coulter, has formed real estate funds with sole investors as the firm prepares to raise its first multiple-investor real estate fund, which investors have said will likely be about $1 billion or more.
Owen Blicksilver, a spokesman for TPG Capital with Owen Blicksilver Public Relations, declined to comment.
Carlyle is replenishing capital after a record-setting sale of a New York property earlier this month. The firm agreed to sell 650 Madison Ave., a 600,000-square-foot (55,700-square-meter) office tower in Manhattan’s Plaza district, for $1.3 billion, setting a per-square-foot record for a U.S. office building.
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