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Carlyle’s Lee: ‘We are focused on scale and thinking bigger’

The Washington, DC firm expects to hold an $8bn final close this fall for Carlyle Realty Partners IX, which would be 45% larger than its predecessor.

The Carlyle Group has surpassed the target for its ninth US opportunistic real estate fund and is on track to hit its hard-cap of $8 billion by this fall, chief executive Kewsong Lee said during the firm’s second-quarter earnings call.

Lee said the Washington, DC-based private equity group has raised nearly $7 billion for Carlyle Realty Partners IX, which launched this past January with a target of $6 billion. Carlyle raised $5.9 billion for real estate strategies during Q2 2021, according to its latest financial report, with the bulk of that going to the first close of CRP IX during the quarter.

Lee: Carlyle is more efficient after dropping less profitable platforms

The firm has secured commitments of $300 million and $200 million, respectively, from the Minnesota State Board of Retirement and the Pennsylvania Public Schools Employees’ Retirement System, according to PERE data. The Connecticut Treasury, Texas Count and District Retirement System, Kentucky Teachers’ Retirement System, Tennessee Consolidated Retirement System and New Mexico State Investment Council each committed at $100 million or more to CRP IX, too.

If Carlyle hits the hard-cap for CRP IX, the fund will be 45 percent larger than its predecessor, Carlyle Realty Partners VIII, which closed on $5.5 billion in September 2018. During last week’s call, Lee said the firm has scaled the size of its opportunistic real estate fund “organically,” and he expects a similar level of growth across Carlyle’s various strategies now that it has pared down its offering to only its top performing platforms.

“We’ve… reduced or discontinued smaller, less profitable strategies that historically distracted our firm,” Lee said. “As a result, our investment organization is operating and connecting more effectively than ever with an ability to pursue buyout, growth and core strategies utilizing a common platform.”

One non-core platform that Carlyle recently parted ways with was its real estate secondaries arm, Metropolitan Real Estate, which it sold to BentallGreenOak earlier this year.

Lee also credited the Carlyle real estate team for pivoting its fundraising apparatus toward digital channels to continue operating through the pandemic. “We moved quickly to adapt to virtual LP meetings, diligence sessions and road shows,” he said. “We now interact with our LPs more regularly, strengthening already deep client relationships. Not only are we able to move faster, but we are focused on scale and thinking bigger.”

Lee added: “The strong first close in our new opportunistic real estate fund is a great example of what we expect across our platform as we close larger successor funds.” Just as the anticipated size for CRP IX will be significantly larger than the prior fund in the series, the firm’s recently closed vehicles for its secondaries and co-investment strategies and investment solutions were each approximately 40 percent to 50 percent larger than their predecessors, he noted.

Carlyle’s opportunistic platform allows for investment across the US and in all property types, but CRP IX will be focused on the Mid-Atlantic, Southeast and Southwest regions, according to a February 2021 investment memo to the Pennsylvania Public Schools Employees’ Retirement System by its consultant Hamilton Lane. The fund will prioritize various residential property types – including multifamily, single-family rentals and active adult housing – as well as life sciences office and logistics warehouses.

Carlyle will look to make between 200 and 300 investments with the fund, most ranging from $10 million and $40 million in equity, according to the PSERS document. It will also use the allocator model, the document notes, meaning it will invest in specialist operating companies rather than real estate directly, though it will take on some development risk alongside its partners.

In a written statement, a Carlyle spokesperson said the firm’s real estate platform typically is “active at the project level as a real estate investor, working with operating partners and property managers to execute its business plans.” Carlyle declined to comment on CRP IX, citing regulatory concerns.

CRP VIII, which began investing in 2017, has a net internal rate of return of 20 percent and a multiple of 1.4x, according to Carlyle’s second quarter financial disclosure. CRP VII, which had 2014 vintage, has achieved a net IRR of 12 percent and a multiple of 1.6x, while 2011-vingate CRP VI produced an 18 percent net IRR and 1.8x multiple.

Including CRP IX, Carlyle has raised more than $24 billion for its flagship US opportunistic fund series as well $5.7 billion for its open-end Carlyle Property Investors vehicle.