Lone Star Funds, the world’s biggest buyer of delinquent mortgages, increased the target on its newest fund by 10 percent to $6.6 billion in response to investor demand, said two people with knowledge of the move.
Lone Star, founded by Chairman John Grayken, expects to complete the first round of capital pledges for the new fund -- which focuses on commercial real estate debt and equity -- as early as next week, said one of the people, who asked not to be named because the fundraising is private. The $6.6 billion is a hard cap, or maximum that the firm will accept.
Jed Repko, a spokesman for Dallas-based Lone Star at public-relations firm Joele Frank, Wilkinson Brimmer Katcher, declined to comment on the fundraising.
Lone Star’s new fund is the biggest being raised for real estate private equity, according to Preqin, a London-based research firm for alternative assets. Grayken’s firm has produced returns exceeding 20 percent over two decades and has never had a losing fund, attracting repeat investments from investors, or limited partners, such as pension funds.
The fundraising environment for real estate private-equity funds in general remains tough, particularly for first-time managers, said Forena Akthar, manager of real estate at Preqin.
“LPs are now placing more importance on previous track records than ever before,” Akthar said.
Lone Star joins firms including Carlyle Group LP (CG), TPG Capital and KKR & Co. (KKR) in seeking more money for real estate and capitalizing on investors’ search for higher returns than those offered by benchmark fixed-income assets. Blackstone Group LP (BX) last year collected $13.3 billion of pledges for the biggest-ever real estate opportunity fund.
In July, Commerzbank AG (CBK), Germany’s second-biggest bank, agreed to sell its Eurohypo U.K. real estate lending unit to Lone Star and Wells Fargo & Co. to comply with European Union state-aid rules following its bailout. Lone Star will buy about 1.3 billion pounds ($2.1 billion) of non-performing loans, which were sold for about 3.5 percent less than book value.
Lone Star’s new investment pool is called Lone Star Real Estate Fund III. The firm in May finished raising a residential-focused fund, Lone Star Fund VIII, with $5.1 billion. Much of that money is being used to buy soured residential loans from Europe’s banking crisis.
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