Cabot Properties held a final close on its fifth value-added fund, Cabot Industrial Value Fund V, at its $775 million hard-cap last week, PERE has learned.
The Boston-based private equity real estate firm beat the original $700 million target for Fund V. With the fund oversubscribed, Cabot was understood to have scaled back on some post-first-close commitments and turned away some new investors.
About $600 million, or more than 80 percent, of the commitments to Fund V came from returning investors. Limited partners included the Pennsylvania Public School Employees’ Retirement System, which committed $100 million in August 2016 and the University of Michigan, which earmarked $50 million in October, according to documents from those institutions. Both groups, along with the New York State Teachers’ Retirement System and The Church Pension Fund, were understood to be longtime Cabot investors that participated in the first close.
With up to 65 percent leverage, Cabot is seeking to invest nearly $2 billion in industrial real estate through the fund. Approximately 80 percent of Fund V’s capital is expected to be deployed in major markets in North America and 20 percent in Europe, particularly the UK. The firm’s largest markets are Chicago, Dallas, Los Angeles, Seattle, Atlanta, New Jersey, the Baltimore-Washington, DC corridor, and the Midlands in the UK.
Similar to Fund IV, Fund V will target the acquisition, development, redevelopment, operating, leasing and selling of industrial properties, with an average deal size of approximately $14 million. Of the $2 billion in buying power from Fund V, the firm has committed to $300 million in investments, half of which are development projects in Los Angeles, Dallas, the Baltimore-Washington, DC corridor and the UK.
“We will likely commit to more development because we see very strong tenant demand, particularly for properties that are 400,000 square feet or smaller,” said chief executive Franz Colloredo-Mansfeld in an interview with PERE. However, development will be capped at 20 percent of the fund.
The fund’s capital is expected to be primarily invested in real estate assets, although up to 15 percent can be designated for mezzanine debt or publicly traded securities, according to a memorandum from PSERS.
Fund V is Cabot’s largest property fund to date, with a levered net return target of 15 percent and levered net multiple target of 1.5x. The firm previously raised $712 million for the 2014-vintage Fund IV and $680 million for 2008-vintage Fund III. Fund IV and III were generating levered net internal rate of returns of 14 percent and 22 percent and levered net multiples of 1.2x and 1.5x, respectively, as of March 31, according to a Cabot document comparing the firm’s investment vehicles.
Earlier this month, Cabot sold a portfolio of 14 UK industrial assets from Fund IV to LondonMetric for £117 million ($150.5 million; €128.6 million). However, the firm has historically exited its investments by selling approximately 90 percent of a fund’s assets in a single transaction, including Fund II to DRA Advisors for $1.1 billion earlier this year and Fund III to Liberty Property Trust for $1.5 billion in 2013.
“Sometimes it makes sense to sell assets on a one-off basis,” said Colloredo-Mansfeld. “But generally, we’ve had success selling to buyers looking for critical mass and scale.”
Industrial portfolios currently are in high demand, both from industrial real estate investment trusts looking to expand through acquisitions or development and large institutional investors – including a growing pool of foreign buyers – that are increasingly attracted to industrial real estate assets because of the higher income they provide relative to other property types, according to Colloredo-Mansfeld. “The opportunity [to sell] has never been better,” he said.
Formed in 1986, Cabot launched its fund management business in 2002. The firm managed more than $2.3 billion of assets as of March 31, 2016.