Cabot closes largest fund yet at $1.6bn in ‘challenging’ environment

Cabot Properties is benefiting from investor appetite for logistics assets, closing its Value Fund VII above target on $1.57 billion.

The fund, which is focused on infill industrial assets in the US, Europe and Asia-Pacific, was initially targeting $1.2 billion, according to Cabot CEO Franz Colloredo-Mansfeld. But in May 2023, the firm raised the target to $1.5 billion and extended the fundraising period by six months.

“Logistics still has got a very positive outlook,” Colloredo-Mansfeld told PERE. “Like the rest of the real estate world, it is still going through a period of adjustment with higher interest rates. But despite that, the fundamentals are very strong … So that was a wind at our back.”

The fundraising environment is very challenging, he said, as institutional investors are allocating less to real estate, and competition among fund managers is increasing. The denominator effect is at play, here, according to Cabot, though that situation is improving.

It took about six months longer to raise Fund VII than its predecessors, Colloredo-Mansfeld said. “Investors are more careful, so their underwriting standards are perhaps more rigorous than they were, say, 10 years ago. Working in the firm’s favor, however, was the fact it had sold assets worth $5.6 billion in the four years leading up to the end of 2021, including Value Fund IV, Value Fund V and Core Fund – creating liquidity for investors that returned to commit money.

A total of 90 percent of the capital came from existing investors, and 50 percent from investors that had committed equity to four or more Cabot funds. “In times like these, that made a big difference,” Colloredo-Mansfeld said.

So far, Cabot has closed or committed $1.2 billion of the fund’s capital across 30 investments in 16 markets, and is focused on acquiring, developing or redeveloping multitenanted buildings between 125,000 and 150,000 square feet. Most of the capital is deployed in the US and the fund’s investors are primarily US-based. With debt, the vehicle is expected to have $3.5 billion in total investments.

Colloredo-Mansfeld said the fund series’ geographical allocations have been changing over time, although Fund VII is still heavily weighted to the US. A decade ago, for example, the limit for Europe was 15 percent and has now risen to 20 percent. About five years ago,  Cabot expanded to Asia-Pacific, in which the firm may allocate as much as 10 percent of the fund’s capital.

While the US is still an attractive market with relatively low vacancy rates, transaction volume is still sluggish and some markets are facing oversupply in certain sectors. The US industrial vacancy rate is expected to rise to 5 percent in the early part of this year, according to CBRE, but should fall slightly in the second half of the year. However, new development will stay low for the time being, according to the brokerage, thanks to a tough lending environment.

According to Colloredo-Mansfeld, Australia – though a smaller economy when compared to Europe and the US – has strong GDP growth and a positive investment outlook. In Sydney and Melbourne, the types of industrial assets Cabot is seeking have vacancy rates of less than 1 percent.

In the US, industrial supply jumped considerably because of the pandemic-induced boom, but Colloredo-Mansfeld believes that issue will soon abate. “The supply pipeline beyond the second quarter of next year actually looks quite limited. The number of starts has fallen dramatically.

“We all worry about the prospects of recession, but as it turned out, 2023 was pretty good … So we’re in a cycle now where there’s some uncertainty, but I think in general, based on what we see, tenants are active [and] demand for 2024 should continue to be good.”