Buchanan Street Partners has lowered the target of its latest value-added fund, Buchanan Fund VI, from $1 billion to $600 million.
According to Fresno County Employees Retirement Association, the Newport Beach, California-based firm was hoping to raise more than double the equity commitments secured by its predecessor fund, Fund V, which closed in 2006 on $414 million.
Private equity real estate firms are struggling to secure hard commitments from LPs in the current environment, with many GPs being forced to lower fund targets or postpone plans for a new real estate vehicles altogether.
Fresno is considering committing to both the latest Buchanan Street fund and Colony Capital’s $1.25 billion value-added fund, Colony Realty Partners III. During an April board meeting, the $2.5 billion pension said it would look to invest with Buchanan Street provided the fund raised $470 million in “signed commitments by other investors” and lower the fees on committed assets.
Fresno has previously invested in Buchanan Street’s prior funds, including Funds I, III, IV, V and Buchanan Urban Investors I and II. The funds have returned net IRRs of 25.9 percent, 36.6 percent, 16.8 percent, 11.7 percent, 26.8 percent and 37.1 percent respectively, as of 30 September, 2008.
Buchanan’s Fund VI will target value-added opportunities across all property sectors, primarily in the US. It also has the ability to invest up to 20 percent in mezzanine loans. Fresno said a final close was originally expected in the first quarter of 2010.
However, the pension fund added in the board meeting minutes: “[In the event] that Buchanan will not be able to raise the capital needed for the fund … the board would reconsider its options such as choosing another manager to invest the funds.”
Colony Capital’s value-added arm, Colony Realty Partners, is targeting $1.25 billion for its third value-added fund, although Fresno said the firm was in the “infant stages of fundraising”. The eight-year vehicle will target US office, industrial, retail and multifamily, with projected gross IRRs of up to 15 percent.