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Crow Holdings Capital eyes perpetual institutional capital strategy

The Dallas-based manager, historically a shorter-term holder, is considering converting an existing closed-end fund to an open-ended structure as part of a plan to establish its first long-term hold strategy.

Crow Holdings Capital is weighing the addition of a perpetual institutional fund to its slate of offerings in the next year as it seeks for the first time to hold some of its assets indefinitely, PERE has learned exclusively.

The firm recently raised an additional $332 million for its Multi-Family Build-To-Hold Fund, securing commitments from 11 new investors, the majority of which are institutional and including two new relationships, to develop six to eight new multifamily properties. Crow Holdings Capital sees greater long-term value in the sector due to a shift in the demographics of homeownership, driven by more individuals opting to rent in part because of the skyrocketing costs of homeownership. The national median price for homes in the US rose 14.6 percent year-over-year at the end of 2021, according to the National Association of Realtors.

CEO of Crow Holdings Capital Bob McClain told PERE that the firm has several options around the strategy, explaining Crow Holdings Capital could maintain the fund’s current closed-ended strategy or convert it to a perpetual capital vehicle.

Crow Holdings Capital launched the fund in 2016 and has raised capital in a series of pools. In all, the fund has 21 investors now, the majority of which are prior clients in other vehicles. The Multi-Family Build-To-Hold Fund has now raised $680 million to date and Crow Holdings Capital expects the fund’s portfolio to reach more than $2 billion in assets.

The fund’s prior fundraising included an initial pool of capital raised from July 2016 to December 2016 and resulted in the development of four properties while the second pool was raised in 12 months beginning in February 2018. That pool also led to construction of a similar number of properties.

With the latest capital raise, the fund now has the scale that gives Crow Holdings Capital the option to transition the assets into a true perpetual institutional fund in a year. “At that point, we’ll either decide to do a pool four [in the existing closed-end fund structure] or convert these pools into an open-ended fund,” McClain said.

The firm wanted to use a familiar method of fundraising – the closed-end structure – to build a stabilized portfolio before potentially moving ahead with a conversion into a perpetual vehicle, senior managing director Nathan Schubert, told PERE.

The slow-play way

The decision to slow-play the entry into an open-ended fund fundamentally came down to pricing. Crow Holdings Capital could have looked at buying into an already established portfolio from an outside manager. But building organically meant the firm could source the deals they wanted and at lower costs than a marked-up legacy portfolio, McClain said.

One factor which allowed the firm to build a portfolio organically is its close affiliation with development company Trammell Crow Residential, which sources and executes on deals for the fund. The firm also leveraged its relationship with TCR, which it had not done previously as it sourced deals for its flagship series of funds.

Multifamily continues to be a major component in its flagship fund series and also features in both of its recent development-focused ventures: Crow Holdings Capital’s Development Opportunities Fund and its ‘attainable housing’ joint venture.

However, Multi-Family Build-To-Hold Fund differs from the other vehicles in that it is building core, class A assets that Crow Holdings Capital plans to hold indefinitely, moving away from the short, three-year holds in its flagship series, McClain said.

McClain declined to estimate as the fund’s first projects have not yet been harvested.

Crow Holdings Capital is the investment management arm of its parent company, Crow Holdings. Also under the umbrella is Crow Holdings Development, the development platform specializing in multifamily, industrial, and office development. The multifamily development company is Trammell Crow Residential.

The manager has now closed on over $4 billion of capital in the last year with its latest fundraise. This includes the $2.3 billion raised in its Crow Holdings Realty Partners IX fund, $750 million in the Development Opportunities Fund, over $600 million from its non-listed industrial real estate investment trust, Crow Holdings Industrial Properties Trust, and $400 million via the attainable housing joint venture.