Carlyle, one of the biggest private equity firms in the world, is poised to return to the private real estate capital markets to raise a Europe-focused opportunity fund after almost a decade away, PERE can reveal.
It is believed the Washington DC-based private equity firm will introduce its fourth opportunity fund for investments in the region later this year. It follows the firm’s prior Carlyle Europe Real Estate Partners funds, the third, latest and biggest of which, Carlyle Europe Real Estate Partners III, attracted €2.2 billion in equity from institutional investors in 2008, just as the global financial crisis struck.
For a number of reasons including that fund’s performance, the firm’s lengthy absence from the commingled fundraising space in Europe, significant personnel changes and to bring the vehicle’s identity more in line with its US counterparts, the firm’s European opportunity funds have been rebranded Carlyle Realty Europe.
The firm declined to discuss fundraising, however it is understood the first Carlyle Realty Europe fund will have a target significantly lower than CEREP III, possibly less than €1 billion.
Carlyle has made four investments in the region in recent months using a mix of balance sheet capital and third-party money via joint venture and club situations. The Carlyle component of these deals are slated to become seed investments for Carlyle Realty Europe to give investors an idea of future outlays made by the firm on behalf of the vehicle.
These deals were led by former Blackstone senior managing director Peter Stoll, who joined in 2015, and his approximately 15-strong bench of real estate professionals. They include the purchase of logistics assets acquired from sector specialist ProLogis and investment in co-working office space in London.
The green light to start marketing Carlyle Realty Europe effectively follows the termination of the life of CEREP III at the end of May. Although it still has about €350 million of assets to be exited, the fund is expected only to deliver an IRR of between 1 and 2 percent and a net equity multiple of about 1x when fully wound up.
However, that would constitute a marked improvement on the vehicle’s prospects back in 2014 when it is understood investors were looking at a 12 cents on the dollar return.
Indeed, in the past three years, Carlyle has exited more than €5.5 billion of real estate, with some exits generating returns considerably in excess of the fund’s stated targets. For example, its sale of UK-based student accommodation platform Pure Student Living for £532 million in March 2015 generated a 44 percent IRR and a 3.25x equity multiple.
Stoll declined to discuss performance, however he told PERE: “Up until 2016, about 80 percent of our time was focused on portfolio asset management and sales and just 20 percent on new business. By January this year, we’ve seen that reverse: now 80 percent is focused on new business and investor relations and just 20 percent on asset management. In that context, we’re now putting together a number of new investment platforms.”
In the US, Carlyle has reached the seventh fund in its opportunistic fund series. Carlyle Realty Partners VII collected $4.2 billion from investors at final close in September 2015. The fundraise followed a decent performance for predecessor vehicle, CRP VI, comprising a net 22 percent IRR and 1.8x equity multiple, as of the end of December, according to the Securities Exchange Commission.
Pointing to the success of Carlyle’s better performing US business, which today comprises approximately $12 billion of the firm’s entire $13 billion real estate asset base, he said: “European real estate was underperforming and underrepresented part of that.” However, following a concerted effort to reverse its fortunes in Europe, he expected the region to represent a meaningfully greater proportion of the firm’s overall property operations.
He added: “Our dialogue with investors has now shifted to what’s next, what’s new,” – a far cry from the conversations he was having when he joined the firm in 2015, he admitted.