Cornerstone closes Fund X well under target

Citing management turnover and lack of major investor re-commitments, the firm closed its latest value-added vehicle on $170m, a fraction of its original equity goal.

Cornerstone Real Estate Advisers wrapped up fundraising for its tenth value-added fund well below its target, PERE has learned.

The Hartford, Connecticut-based firm garnered about $170 million in commitments by the end of June for Cornerstone Real Estate Fund X, which was launched in February 2015 with a $500 million target, according to a filing with the US Securities and Exchange Commission.

The firm declined to comment, but PERE understands that internal turnover and lack of follow-on commitments from major investors contributed to the low capital raise. During the fund's marketing process, both the firm's chief executive and its head capital raiser retired, with the new executives who filled those roles coming from outside the company.

Meanwhile, PERE understands that three large investors from the predecessor vehicle chose not to re-commit with Fund X because their strategies shifted.

MassMutual Life Insurance Company, the parent company of Cornerstone, invested $50 million in the vehicle and Cornerstone itself will co-invest 1 percent of total commitments.

Cornerstone closed the previous vehicle, Cornerstone Real Estate Fund VIII, in March 2012 on $546 million, above its $400 million target, PERE previously reported. Investors included Illinois Municipal Retirement Fund, which allocated $25.1 million; National Pension Service of Korea, which earmarked KRW150 million ($133,233; €120,306); and Cape Coral General Employees' Pension Fund, which invested $3 million, according to PERE research. Cornerstone had a 12 percent to 14 percent net internal rate of return (IRR) target for Fund VIII, and PERE understands the vehicle is currently on track to generate a 15 percent net IRR.

The firm is maintaining the same strategy for Fund X as it employed for the previous funds in the series. Cornerstone is investing across property types in US markets with strong growth prospects and supply constraints. The firm has purchased two office buildings and one retail center to date with capital from the vehicle. The firm's most recent publicly disclosed US acquisition was the June purchase of Sterling Parc at Hanover, a 27-building apartment property located at 2101 Glen Drive in Cedar Knolls, New Jersey, for $91 million, according to real estate data provider Real Capital Analytics (RCA). Cornerstone bought the 316-unit complex from Invesco Real Estate, according to RCA.

Cornerstone had $50.6 billion in assets under management as of March 31, according to the firm's website.