Dallas-based manager Crow Holdings Capital closed its largest-ever fund last week on $3.1 billion, up 35 percent on the size of its predecessor. Despite its success, the firm’s chief executive officer Bob McClain told PERE that raising capital from investors for Crow Holdings Realty Partners X was far from straightforward.
“In my 36 years in real estate, it was the most difficult fundraising environment ever – nearly every person you would meet was nervous,” said McClain. “About midway through the fundraising, people started feeling like this is going to be similar to after the global financial crisis – that there is going to be tremendous opportunity.”
The fundraising environment has vexed firms across the board, with reports of investors allocating less to real estate and competition between fund managers increasing. Angst over the frozen transaction market and soaring rates has seeped across the landscape; in some cases managers are seeking extensions on investment periods and some are finding they have not set aside enough reserves.
While on the road with Fund X, which will make value-add investments in a range of property types across the US, McClain found most investors wanted assurance.
“Because we’ve done this for 25 years, we can highlight three examples of the past where our team has made the right call on market selection and property types,” he said. “Specifically, the investments we did after the dotcom crash, then the investments we made immediately after the GFC and then, most recently, the investments we made after the pandemic.”
For this fund, 70 percent of capital came from returning investors, according to the firm. New investors came in the form of global banks, sovereign wealth funds, insurance companies, pension plans, family offices and high-net-worth individuals. Non-US investors contributed 27 percent of total commitments. The target was $3 billion.
A big lure for investors was the fact there is no allocation to office or hotel, McClain said. The target is for 35 percent allocation to industrial assets, largely focused on new developments between 100,000 square feet and 400,000 square feet.
The multifamily allocation target is also 35 percent, but McClain said the firm will be avoiding that asset type for most, if not all, of this year.
“The reason for that is the mass of supply [of multifamily deliveries] in 2023 in the US… which was basically fueled by the extremely low interest rates in ‘21 and ‘22,” he explained. “We will be on pause until all that space gets absorbed and the market becomes more stabilized.”
So far, the firm has deployed 25 percent of the fund’s capital, across 14 separate transactions. These include the purchase of a portfolio of 46 manufactured housing communities across the US for $620 million. In these kinds of investments, Crow owns the “pads” – the land upon which the manufactured housing sits – and the resident owns the home. Crow also owns the streets and common areas.
“It’s a highly fragmented space, very similar to storage. About 73 percent of the manufactured housing communities in the country are owned by individual owners; as they age, they tend to want to convert that investment to municipal bonds or a stock portfolio for their children,” McClain said. “We’ve been fortunate enough to be able to invest in over 100 of these to date, and it’s a sector where we’ll probably deploy 20 percent of Fund X.”
Student housing and self-storage are additional areas in which the firm has been active, along with food and service retail, as well as convenience and gas stations.
“We have a blank piece of paper going into the placement period, and we will, as we have in the past, allocate to the most attractive opportunities available,” said McClain.
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