Bain Capital has closed its second value-add real estate fund on more than $3 billion, PERE has learned.
The vehicle, Bain Capital Real Estate Fund II, launched in 2020 with an initial target of $1.6 billion, after closing on $1.52 billion with its predecessor in 2019. It is the latest fund to close between $1 billion and $5 billion in a year dominated by such midsize vehicles.
The Boston-based manager took a conservative approach to the fund at first because of uncertainties about covid-19, Dan Cummings, managing director and head of real estate at Bain, told PERE. But as deal flow picked up last fall, it was able to ramp up its fundraising accordingly.
“We were really pleased with the investor base and the support we’ve seen over the course of the last year,” Cummings said. “It’s great to achieve this level of scale. We believe it is the right size fund for the scale of opportunities that we’re accessing.”
The fund was backed by several US pensions, including the Los Angeles County Employees’ Retirement Association and the Indiana Public Retirement System, which each committed $100 million, as well as the Maine Public Employees Retirement System, which committed $50 million. Other investors include private pensions, sovereign wealth funds and high-net-worth individuals.
The fund also includes a significant buy-in from Bain, with the manager’s employees contributing $220 million of their own capital to the vehicle.
Bain did not set a hard-cap on the fund, Cummings noted, but investors were kept in the loop about the increase in deal flow activity and the subsequent addition of more capital along the way.
A focus on niche properties
Bain has identified four primary themes for the investment of its second fund: life sciences, content creation, e-commerce distribution and housing.
In line with its longstanding investment approach, the firm has created platforms for each segment. So far, the fund has deployed about $1 billion, with the biggest share of that capital going toward lab space and logistics, with media production real estate – including film studios – being a close third.
The focus on these in-demand property niches contributed to the strong demand from investors for Fund II, Cummings said, as did Bain’s track record. His team has been investing in life sciences real estate since 2014, when they were running the real estate platform for Harvard University’s endowment. It has also been active in various types of senior housing, including assisted living and memory care, since 2010.
“Investors are increasingly looking for exposure in the kinds of sectors that we’ve been operating in, and we are continuing to develop new strategies across our target sectors,” he said. “The way in which we’ve executed our thematic investment approach over time really demonstrates our ability to source and execute value-add strategies.”
Bain Capital acquired Cummings’s team from Harvard in 2018. Since then, it has grown from 19 people to 45.
Buying old, building new
Despite targeting value-add returns, Cummings said ground-up development plays a significant role in the fund’s strategy. In San Francisco, for example, Bain has acquired a hotel that it will tear down and then replace with a 550,000-square-foot high-rise building for a life sciences lab and office space. In West Los Angeles, the firm purchased a former Sears department store, which will be the future site of a content creation campus with creative office space and sound stages.
The acceleration of changes brought on by covid-19 has created opportunities for repositioning existing properties, Cummings said, and Bain is capitalizing on that, too.
“The Covid crisis and the resulting uncertainty around long-term demand for office space has increased and broadened our office-to-lab-space conversion opportunity set in the best locations in our target markets,” he said.