Lone Star Said to Raise $5.5 Billion for Commercial Real Estate

Lone Star Funds, the investment firm run by John Grayken, raised $5.5 billion for a fund to buy commercial-property assets as real estate values recover, according to a person with knowledge of the situation.

Lone Star Real Estate Fund II exceeded its target of $4 billion after attracting investors in recent months, said the person, who asked not to be named because the fund’s closing hasn’t been made public.

Commercial-property values climbed 3 percent in May from the previous month, according to Green Street Advisors Inc., a research firm in Newport Beach, California. Investors with Lone Star included New Jersey’s state pension, which last month agreed to put in $400 million.

“It was cleared at the May 19th meeting” of New Jersey’s investment council, which oversees state pension investments, said Andrew Pratt, a spokesman for New Jersey’s Treasury Department in Trenton.

Jed Repko, a spokesman for Dallas-based Lone Star, declined to comment on the fund raising, which was reported yesterday on the website of Private Equity Real Estate.

The New Jersey investment comprised $100 million in Fund II and $300 million in a separate fund called Lone Star Fund VII that will buy residential loan pools, securitized home mortgages and stakes in property lenders.

Lone Star is still marketing Fund VII, according to the person familiar with the fund raising. The company in November asked investors for six more months, until May 31, to raise the two funds as it sought to acquire troubled U.S. property loans from banks.

Lone Star originally sought to raise as much as $20 billion for the funds. It cut that target in February 2010 as institutions shunned real estate after the global credit crisis and banks were slow to sell troubled loans.

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