Carlyle Raises $4.2 Billion for Seventh U.S. Real Estate Fund

  • Targets include apartments, warehouses and office buildings
  • Bargains harder to find as property values 18% above 2007 peak

Carlyle Group LP raised $4.2 billion for its seventh U.S. real estate fund, meeting the top end of its target range, in preparation for more property purchases at a time when prices are at record levels.

The firm will expand investments in apartment buildings, along with 
its other areas of focus: warehouses, offices and retail properties in major markets, said Rob Stuckey, managing director and head of U.S. real estate. The Washington-based company also has backed senior housing, self-storage and mobile homes, along with two condominium projects on Manhattan’s west side.

Opportunity funds such as Carlyle’s seek returns of about 20 percent before fees. With real estate values climbing, it’s getting harder for investors to find bargains. U.S. commercial-property prices are 18 percent above their 2007 peak, according to an index from research firm Green Street Advisors LLC.

“We’re now seven years into the recovery and we have to be mindful of 
those risks,” Stuckey said in a telephone interview. At the same time, growth in U.S. gross domestic product points to further gains for real estate and sustained tenant demand in industries such as technology, he said.

“I don’t see deal volume slowing down,” Stuckey said. “We see values 
holding up for core properties and we think that with GDP growth, we still have runway in this cycle.”

Carlyle’s previous real estate fund, CRP VI, had a net internal rate of return of 24 percent as of June 30, according the company’s second-quarter report.

Apartment Deals

Carlyle bet on rental apartments early in the recovery from the housing market’s crash and has sold some of those investments as prices soared. More than one-third of the firm’s previous $2.3 billion U.S. real estate fund was in multifamily buildings, which have led the recovery in commercial property.

Since the earlier real estate fund started in 2011, Carlyle has invested roughly $1.4 billion of equity in about 29,000 rental units, and sold almost half of those.

For its latest fund, Carlyle drew first-time commitments from sovereign wealth funds in Asia and Europe, in addition to repeat investors such as public pension funds, according to Stuckey.

“Sovereign wealth investors are increasingly important” in U.S. real estate, he said.

The fund’s investors also included Alistithmar Capital, a unit of Saudi Investment Bank; Chilean asset manager Moneda SA Administradora General de Fondos; and Butterfield Asset Management of Bermuda, according to a regulatory filing.

Carlyle is the world’s second-largest manager of alternative assets, behind Blackstone Group LP. In 2013, the firm sold 650 Madison Ave. in Midtown for about $1.3 billion, or $2,235 per square foot. That remains the highest square-foot price for U.S. office properties that sold for $1 billion or more, according to Real Capital Analytics Inc.

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