A year after closing its debut fund on $105 million, BKM Capital Partners is back in the market, with the goal of raising a new fund that would be triple the size of its predecessor, the firm said Monday.
The Irvine, California-based firm originally targeted $200 million for BKM Industrial Value Fund I, an industrial-focused, value-add vehicle that it closed in February 2016. However, Brian Malliet, the firm’s co-founder, told PERE at the time that BKM had decided to close its debut fund before it hit its target in order to begin investing. BKM also garnered $30 million in sidecar capital for the fund.
Now, the firm is back in the market with a $300 million target for BKM Industrial Value Fund II. Malliet said BKM increased its target from the first fund because of a long pipeline of investment opportunities and increased investor interest, particularly from US public pension plans and other institutional investors that are often restricted from investing in a firm’s debut fund.
With capital from the fund series, the firm invests in light industrial real estate in the western US, which Malliet defined as properties under 100,000 square feet. These properties typically house groups such as cleaning companies that service larger industrial assets.
“The small bay space usually lags about four to five years behind the big box companies because the big Fortune 500 companies go through an expansion phase, and then the smaller businesses that support the Fortune 500 companies go through their own expansion periods,” Malliet said. “For the first time, we’re seeing rental growth in the 5-8 percent range.”
BKM’s investor base includes pension funds, insurance companies and high-net-worth investors, Malliet said. For its first fund, BKM closed a family-and-friends round of financing in June 2014 and started institutional fundraising in January 2015. The firm is not soliciting capital from friends and family for its second vehicle because of strong institutional demand.
The firm is targeting a 15 percent net internal rate of return for the fund series. BKM purchased 18 assets with capital from the vehicle, which is fully invested, and has sold three of those properties.
BKM’s most recent transaction was the its first disposition from Fund I, last month selling three multi-tenant industrial business parks that the firm bought in 2014. The firm generated an IRR of at least 38.5 percent with the sale of the assets, two of which were in Las Vegas and one in Portland, Oregon.
The firm does not have a hard-cap for the fund, nor is it using a placement agent.
BKM currently manages $130 million in assets, Malliet said.