Carlyle closes on its largest-ever RE fund

The Carlyle Group has closed its eighth US opportunistic real estate fund at its $5.5 billion hard-cap.

The Washington, DC-based alternative asset manager launched Carlyle Realty Partners VIII in 2016 and held a first close of nearly $2.8 billion in May 2017, according to a filing with the Securities and Exchange Commission. In a unit holder presentation earlier this month, the firm disclosed it had raised $5.3 billion for the fund as of June 30.

CRP VIII’s investor base comprised 145 limited partners, 51 percent of which were US-based and 49 percent of which were non-US. Twenty-five percent of the fund’s capital came from US pension plans. These included the Pennsylvania Public School Employees’ Retirement System, which committed up to $200 million; Minnesota State Board of Investment, which agreed to invest $150 million; as well as New Mexico State Investment Council and Florida State Board of Administration, both which pledged $100 million, according to PERE data.

CRP VIII, which had an initial equity goal of $5 billion, represents Carlyle’s largest real estate fund to date. The firm previously raised $4.2 billion for CRP VII in 2014, $2.3 billion for CRP VI in 2010 and $3 billion for CRP V in 2006, the unit holder presentation stated.

“We’ve constructed the fund with an eye toward selecting sectors that have enduring growth,” said Rob Stuckey, head of Carlyle’s US real estate business. “We believe that we’re relatively late in the cycle so cyclical risk is a paramount consideration when thinking about each sector. When we evaluate each sector, we think about how well it will hold up through the down cycle. There are some sectors that are much more cyclical, like office and hotel sectors, that require attractive pricing to compensate for that risk.”

The fund will be focused on 12 property types, including multifamily, active adult living, office, retail, industrial, multifamily and hotel, self-storage, senior housing, life sciences, manufactured housing and student housing.

“We choose our sectors based on the level and quality of growth we perceive,” Stuckey said. “One factor that affects the quality of growth is how the sector will perform during a recession. There are eight sectors we think are well-positioned, while another four will be opportunistic.” Multifamily and active adult in particular are expected to have strong weighting in the fund, he said.

The fund’s primary geographical target markets include New York, Washington DC, California, Atlanta, Boston, Chicago, and Seattle. Through CRP VIII, Carlyle will acquire, develop and redevelop well-located institutional-quality assets that are under managed or under capitalized, with the aim of improving net operating income and value through renovations, re-positioning and re-tenanting.

Carlyle began investing CRP VIII with the first close of the fund, and to date has invested its capital in active adult, multifamily, industrial deals, self-storage and senior living sectors. The average equity investment per transaction has been approximately $18 million across the CRP fund series, with no individual deal accounting for more than 2-5 percent of the fund’s capital, according to PSERS documents.

CRP VII was generating a 22 percent gross return, a 14 percent net return and a 1.4x money on invested capital, while CRP VI was return 28 percent on a gross basis, 20 percent on a net basis and a 1.8x multiple, according to the unit holder presentation. Carlyle expects the performance for CRP VII, which is fully invested and partially realized, as well as CRP VIII to eventually be in line with the returns for CRP VI, which is substantially harvested.