Also Fund Raising News from: GGP, Finesa Real Estate Group, Regional Real Estate Investment Corp. and Real Estate Capital Partners
By: James Wallace
Starwood Capital is expected to close almost $3 billion in equity for its ninth global private equity real estate fund by the end of the year, hitting the top end of its capital-raising expectations at a time when opportunistic capital raising has become fiercely competitive.
Fundraising for Starwood's Distressed Opportunity Fund IX Global began last July, according to SEC filings.
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Closing a full $3 billion of equity by the end of the year, would give Starwood a total spending power of $4.8 billion, based on an average deal by deal 60% leverage applied to investments.
Investors contributing to Starwoods fund include U.S. pension funds, endowments and foundations, sovereign wealth funds as well as insurance companies and high net worth individuals.
The New York State Teachers' Retirement System invested $50 million to the fund in July, while the Teachers' Retirement System of the State of Illinois invested $150 million in February, according to Private Equity Real Estate.
Starwood's first closing was last December, at which point $1.2 billion of equity was raised.
The fund is already 25% invested, with investment to date focusing on distressed U.S. opportunities although the remit extends to Europe.
Starwood has offered management fee breaks for the first time in its history to institutional investors committing more than $150 million of equity. The company declined to comment.
The predecessor fund, the Starwood Global Opportunity Fund VIII (SOF VIII), completed its final $1.83 billion equity closing in March 2010, and targeted global distressed real estate and debt, with JPMorgan Chase supporting the search for investors.
Prior to the ninth fund, Starwood had raised $7.32 billion for its series of global real estate funds - across opportunity, hospitality, debt and distressed strategies, according to Preqin, the alternative asset industry data provider.
A closure of Starwood's Distressed Opportunity Fund IX Global at $3 billion, would take that decade total to more than $10 billion.
Except for the very largest private equity players, capital raising for opportunity real estate funds has become more difficult given that managers are all tapping the same institutional investor base, with broadly similar investment strategies.
There are currently 467 global real estate funds capital which have at some stage been capital raising this year, seeking a combined $163 billion in equity capital.
But the actual amount of capital raised in this calendar year is thought to be much lower. So far this year, 79 private equity real estate funds have raised a combined $24.8 billion, according to Preqin data.
"The situation is challenging for real estate funds currently trying to raise capital," said Alex Jones, senior analyst at Preqin. "The fundraising market it is very crowded across all private equity strategies, and this is especially the case for real estate funds."
"Private real estate vehicles account for the largest proportion of all PE funds currently seeking capital from investors and as a result it is a very competitive space, Jones said.
"While investors on the whole have a positive outlook regarding real estate, fundraising has declined across each quarter of 2012 year-to-date, and the key issue for real estate GPs at the moment is how to stand out from the pack and attract what little capital commitments are coming in. However, the reality is that there is simply not enough capital going around for all the managers to be successful and hit their targets," he added.
One doesn't have to look far to learn where much of the money has gone. Besides Starwood's impressive share, Blackstone in January closed the largest ever global real estate fund, raising an astounding $13.3 billion.
GGP Continues Raising Money Thru Refis
General Growth Properties Inc. (NYSE:GGP
) has continued its successful strategy of raising funds through refinancings. The REIT recently completed $1.5 billion of property-level transactions, which generated $137 million of net proceeds after repayment of existing mortgage notes.
The new loans have a weighted average interest rate and term of 3.88% and nine years, respectively, as compared to a rate of 5.58% and a remaining term-to-maturity of less than one year.
On a year-to-date basis, the company has completed $5.9 billion of property-level financings generating net proceeds of approximately $664 million. As a result of these transactions, the average interest rate decreased 130 basis points from 5.63% to 4.33%. The company has no further property-level debt maturing in 2012.
In addition, the company was to retire $349.5 million of corporate unsecured debt on this week with cash on hand.
Latin American Investors Flock to New U.S. Fund
Finesa Real Estate Group closed a $200 million equity fund, Diversified International Partners (DIP). DIP is a real estate private equity fund developed for Latin American institutional and qualified high net worth investors. Finesa successfully secured commitments from some of the most prominent pension fund and endowment managers in Latin America.
DIP is actively seeking investments in the best markets across the country, focusing on multifamily, retail, office, and industrial/flex properties. The fund will target cash flow generating assets in a combination of core, core-plus and value-add strategies, which in some cases will offer opportunities to marginally increase operating results through a hands-on operating efficiency.
The first closing was expected to have aggregated commitments of $50 million. Finesa exceeded that goal by more than 40% and raised a total of $71 million. The fund will continue raising capital through the second quarter of 2013 and is anticipated to be fully subscribed.
"We believe now is a great time for our investors to jump back in to the US market. Today our investments are achieving strong yields and our investors are buying dollars with strong foreign currencies. For them, it is a great combination. Finesa's strong base of international investors is very excited with the opportunities we can access for them today." states Andres Gonzalez, president and CEO of Finesa Real Estate Group.
Rockville, MD-based Finesa retained Transwestern Investment Management as the exclusive investment manager.
Unions Bankroll New DC Development Fund
Real Estate Investments in Washington-Baltimore Will Use Union Labor
A new real estate investment fund targeting development projects in the Washington-Baltimore region has initially raised $35 million from institutional investors.
Sponsored by Regional Real Estate Investment Corp. (RREIC) of Plymouth Meeting, PA, and New York City-based Real Estate Capital Partners (RECP), Develop-DC LP will provide equity or mezzanine loans to leading local and national developers for new ground-up development or projects requiring major renovations. All construction will utilize 100% union labor.
The fund's investors include the International Brotherhood of Electrical Workers Local 26, the largest labor union in Washington, DC; the International Union of Bricklayers and Allied Craftworkers; and Independence Blue Cross of Pennsylvania, among others, along with investments from the sponsors, RREIC and RECP.
Develop-DC is targeting projects valued at $30 million to $150 million covering a wide range of sectors including multifamily residential, office, hospitality, and mixed-use. The initial focus will be multifamily projects, particularly those connected to transportation hubs.
Over the next three to four years, the fund expects to invest up to $200 million in projects with a total valuation of $500 million to $700 million.
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