Carlyle closes RE secondaries fund on $1.2bn

Metropolitan Real Estate’s previous vehicle in the strategy raised $550m.

The Carlyle Group has closed its second real estate secondaries fund on $1.2 billion of equity, PERE understands.

Backed by a strong contingent of repeat investors and an influx of new foreign capital, Metropolitan Real Estate, the firm’s fund-of-funds management subsidiary, surpassed its $750 million target for Secondaries Program II, which will seek opportunistic investments worldwide.

Secondaries Program II, which launched in 2017, is more than double the size of its predecessor, Metropolitan Real Estate Partners Secondaries & Co-Investments Program, also known as SCIF, which brought in $550 million on a $450 million target.

“We’re very pleased with the amount of capital that we raised,” Sarah Schwarzschild, head of secondaries at Metropolitan, said. “We are confident we can deploy it while maintaining our returns and our selectivity.”

Metropolitan has since spun out the co-investment component of its first fund into a standalone venture so SCIF can focus solely on secondaries.

Secondaries Program II won’t be bound to any particular property type, investment structure or region, Schwarzschild told PERE. It aims to provide liquidity to investors looking to exit single vehicles, pooled funds and co-investments, though she added that the firm is inclined to focus on core assets in the US, Western Europe and developed Asia.

Secondaries Program II has closed on five investments in a variety of property types across the three regions.

“It’s opportunistic so we can go where we think the most interesting opportunities are at any point in the market,” Schwarzschild said. “We have the leeway to look here in our backyard in the US. And we’re looking all the time in Europe and Asia and we have offices in all those locations, so we have Metropolitan boots on the ground.”

As with its previous secondaries fund, which closed in 2016, Schwarzschild said Metropolitan has benefited from a relatively small field of competitors.

One of the few real estate secondaries funds that closed last year was Landmark Partners’ Landmark Real Estate Partners VIII, which brought in $3.3 billion in April. Meanwhile, Partners Group had raised €2 billion as of September for Partners Group Real Estate Secondary 2017 and is expected to continue fundraising.

While some investors have sought an early entry into the nascent market, others have gravitated to real estate secondaries as a defensive strategy, Schwarzschild said, as assets are typically acquired on a discounted basis and with a shorter hold period. Others see secondaries as a means of scaling their portfolios quickly.

“We have a sovereign wealth fund investor that’s building out a portfolio and they’re using secondaries to get invested quickly, layering in primary investments and expecting the secondary fund, as it liquidates, [to] fund some of the future capital calls of those other investments they’re making,” Schwarzschild said. “We have a host of investors who like the cashflow characteristics and some who cross over into other categories.”

Launched in 2002, Metropolitan Real Estate was acquired by Carlyle in 2013 and is now part of the company’s Investment Solutions platform along with AlpInvest Partners. The two groups focus on secondaries, co-investments and primary funds. Metropolitan manages more than 225 fund investments and oversees roughly $2.3 billion of client capital.