The Carlyle Group has gathered €540 million for its first European real estate fund in more than a decade, Carlyle Europe Realty Fund, PERE has learned.
Carlyle began marketing CER in 2017 and raised an initial €300 million in two closes, one in December 2017 and the other in March 2018. By December 2018, the firm had gathered the bulk of the fund’s capital, having closed on a total of $585 million, or €515 million, according to filings with the Securities and Exchange Commission. It took an additional six months for a handful of remaining investors to close on their commitments.
The opportunistic fund exceeded its €500 million target, the latest Europe-focused vehicle to meet or exceed its equity goal. However, the equity haul is considerably smaller than what the Washington, DC-based investment firm had been capable of raising in the past: its 2005-vintage Carlyle Europe Real Estate Partners II closed on €762.7 million, while the 2007-vintage CEREP III collected €2.23 billion.
However, comparing the size of the CER to the historical Carlyle European real estate funds “was not really a consideration,” Peter Stoll, head of Carlyle’s European real estate business, told PERE. “That history is pretty squarely a part of the past…It’s a completely new fund line and product.”
While it is Carlyle’s fourth property fund targeting the region, it is the first offering in a rebranded series under a rebooted platform led by Stoll. The former Blackstone executive was brought on in 2015 to rebuild the European platform, which had suffered from both the poor performance of CEREP II and III and the departure of former European heads Robert Hodges and Eric Sasson in 2011. In its Q1 2019 earnings results, Carlyle reported a 0.2x multiple on invested capital and a negative gross internal rate of return for CEREP II and a 1.2x multiple and 5 percent IRR for CEREP III as of March 31.
The size of the new fund was determined primarily by the addressable market opportunity in a fairly mature market cycle, and the fact that the vehicle was what Stoll called a “half-fund” – one with a two-year investment period rather than the typical four-year period.
One of the advantages of a smaller fund size with a shorter investment period was the ability to raise money more quickly and focus on investing, he said. It also appealed to investors, Stoll said: “They like the hard, cold commercial side, because they pay less fees, there’s less of a J-curve, and they get their money invested more quickly.”
To date, Carlyle’s European real estate team has committed or invested about 30 percent of CER across seven investments, and with its current pipeline, Stoll expects the fund could be 50-70 percent invested by year-end. The firm will target the sectors of logistics, residential, student housing, retail, hospitality and co-working for the fund and markets that include UK, France, Germany, Italy, Spain, Ireland and Portugal.
Carlyle’s European real estate team also has amassed €300 million from five co-investment vehicles since late 2016, four of which were formed prior to the launch of CER. The transactions made through the co-investment vehicles included the acquisition of five logistics properties in northern Italy in December 2017 and the purchase of three assets in the London flexible office and co-working sectors in June 2017. Pieces of those co-investment deals were then used to seed the fund, accounting for about 10 percent of the fund’s €540 million.
Of the investors in the four pre-fund vehicles, the majority went on to ‘re-up’ with CER, Stoll said. Because those investors typically wrote smaller checks to the fund, “it wasn’t a massive factor, but it helped us get momentum” with the fundraise, he said.
Additionally, legacy investors from the three CEREP funds accounted for about a quarter of the fund’s capital. The vast majority of the equity raised, however, came from new relationships, most significantly European and Middle Eastern institutional investors, a large US insurance company and fund of funds and high-net-worth investors across the globe.
Stoll expects the firm will be able to raise capital from a wider investor base for subsequent European real estate offerings. “There’s a sizeable pool of institutional capital that as a rule do not invest in ‘first time’ funds and will want to wait and see how CER performs. I see that as an opportunity for the future.”
Carlyle’s global real estate business currently has assets under management of $21 billion and 120 investment professionals globally, while the European property platform has 13 professionals and $1 billion of AUM.