The Carlyle Group has closed the ninth and largest iteration of its signature opportunistic series of funds, hitting its $8 billion hard-cap in record time.
The $293 billion manager launched Carlyle Realty Partners IX in January, initially targeting $6 billion. Most of the strategy’s institutional raising was done this summer, with the firm snagging $300 million commitments from both the Teachers’ Retirement System of the State of Illinois and Minnesota State Board of Investments, per PERE data. It is understood the capital raise was the fastest in the history of the fund series.
Washington, DC-headquartered Carlyle finished off the fundraising with a retail feeder in the fall, although the amount of capital raised through the feeder has not been disclosed, PERE has learned. Carlyle raised a total of $7.75 billion in outside capital with the remainder of the fund made up of GP capital, Robert Stuckey, Carlyle’s head of US real estate and managing director told PERE.
The US-focused fund is 45 percent larger than its $5.5 billion predecessor Carlyle Realty Partners VIII. The $8 billion raise also represents the second-largest real estate private equity fund closed this year, after Starwood Capital closed its 12th opportunistic fund with $10 billion in capital commitments earlier this year.
Carlyle is continuing its strategy of counter-cyclical investments, buoyed by demographic trends. For example, the firm continues to target both traditional residential and more niche subsectors of the asset class like single-family rentals and active adult, properties targeted at 70-to-80-year-old tenants who are still independent. Stuckey said Carlyle is the largest investor in the active adult sector in the US.
Niche continues to be the order of the day for Stuckey, who has overseen Carlyle’s fund business for 23 years. He said the new fund will continue to be active in self-storage and data centers. The firm is also still interested in studio space after its investment in Manhattan Beach Studios in 2019.
“We believe covid accelerated the factors that supported our pre-covid sector evaluations,” Stuckey said. “Given its resilience, that strategy remains in place post-covid.”
On the more traditional side, industrial remains a focus for Carlyle despite pricing becoming difficult. Given the fund series’ opportunistic bent and the firm’s internal capabilities, Carlyle does not necessarily need to purchase assets in that sector, however.
“All of our industrial investing is in development,” Stuckey said. “When we finish those developments, we have had deep exit liquidity to core buyers.”
Hotel, retail and office have been sectors Carlyle has avoided for a few fund cycles, given the challenges that all three sectors have faced. But while those property types did not feature in the previous fund, the firm may potentially look at hotels going forward, Stuckey said. “We may invest depending on the opportunity, but the bar will be high.”
Geographically, Carlyle remains focused on markets benefiting from the migratory trends out of gateway markets into secondary and tertiary ones in the US. Stuckey singled out Austin, Raleigh and Nashville as attractive markets given the favorable dynamics present in those cities. Gateways remain challenged but Stuckey was optimistic about one in particular.
“At this juncture in time, we are monitoring whether there is a rotation back to the cities most damaged by covid. There’s a range of possible outcomes,” he said. “We have seen nearly a complete recovery of the population in Manhattan, which is encouraging.”
In gateway markets, “I do think there have been some price dislocations,” Stuckey added. “In those markets, the window will close quickly.”