Cabot Properties has raised more than 80 percent of its target with the first close of its new US core industrial real estate fund, PERE has learned.
The Boston-based private equity real estate firm has gathered $490 million for Cabot Industrial Core Fund II against a $600 million target. Most of the capital in the first close came from existing investors, including the Pennsylvania Public School Employees’ Retirement System, which committed up to $100 million in February; New York State Teachers’ Retirement System, which earmarked $150 million in August; and Teachers’ Retirement System of Louisiana, which allocated $50 million in July, according to those institutions.
Cabot declined to comment, but PERE understands that the firm is expected to wrap up fundraising by the end of the year. The fund, which was launched last October, reportedly has no hard-cap.
From a fundraising perspective, Core II is already more successful than its predecessor, which collected a total of $443 million against a $750 million equity goal in June 2016.
Core II will be focused on the acquisition of Class A distribution buildings in 12 core industrial markets in the US, according to documents from TRSL. The fund’s portfolio is generally expected to comprise 25 to 35 investments, with targeted properties generally constructed after 2000 and ranging between 100,000 to 500,000 square feet. Cabot typically pursues transactions requiring $5 million to $50 million in equity.
To date, Cabot has made two investments through Core II: the $36 million purchase of a fully leased 323,000-square-foot industrial building in Cicero, Illinois from Bridge Development Partners in June; and the acquisition of Beltway Southwest Business Park – a 100 percent occupied four-building industrial campus in Houston, Texas – from Hines for $79 million earlier this month.
Core II will have a net return target of 8-10 percent, with anticipated initial current yields of 5-6 percent. The majority – 70-80 percent – of the return is expected to come from current income with the remainder derived from appreciation driven by income growth, according to PSERS documents.
Cabot’s first industrial core fund was generating a net return of 15 percent and a multiple of 1.2x as of December 31, 2017, the TRSL documents stated.
Cabot also has a value-add fund series, the latest of which is Cabot Industrial Value Fund V – its largest fund to date. Value V closed on $775 million in commitments in August 2017 and is now said to be 50 percent invested.
Both of the firm’s funds series have closed-end structures but different investment approaches. The core funds have a 10-year hold, a 40 percent leverage limit, involve no speculative development and focus on fully or nearly fully-leased properties, according to the TRSL documents. Meanwhile, the value-add funds have a 5-7-year hold, target 55-65 percent leverage, include speculative development and focus on under-leased assets.
The exit strategy for both types of funds is to sell the majority or all of the assets in the vehicle to a single buyer. For example, the firm sold the bulk of its Value IV portfolio to Blackstone Real Estate Income Trust for $1.8 billion earlier this year.
Cabot is raising its latest core fund at a time when demand for industrial real estate continues to intensify. In North America, overall cap rates in the sector fell by an average of 10 basis points to 6.42 percent in H1 2018, with Class A rates declining by 11 bps to 5.14 percent, according to a CBRE report released this week.
“The industrial and logistics sector remains blisteringly hot and cap rates may continue to decrease in the remainder of the year, given the extremely robust market fundamentals and the tremendous institutional investor demand for industrial and logistics assets,” said Jack Fraker, global head of industrial and logistics at CBRE Capital Markets. “There is much more investor demand than supply of offerings – by some estimates as high as an 8-to-1 imbalance.”