IDERA Capital Management, the boutique Japanese private equity real estate firm owned by the Chinese conglomerate Fosun, is planning to discontinue fundraising for its second residential real estate fund, Japan Urban Residential Club II (JURIC II).
PERE understands that the firm will close the fund at $40 million, an amount that was raised in a first close last year, instead of pursuing its initial target of $60 million.
The decision to discontinue fundraising was not taken because of any challenges in raising capital, but because of changing market fundamentals. Existing investors were thought to have displayed concerns that any fundraising and, therefore subsequent investments, could dilute the expected IRRs. Mikihisa Hirai, the chairman of IDERA, told PERE that the “objectives of JURIC II may not be met if the fund is expanded too broadly at this juncture.”
Explaining investors’ concerns further, Hirai said that from the $20 million invested, the firm was able to acquire properties at a good price, but with the “vast change in the market conditions, any new properties will need to be acquired at more competitive prices and hence dilute investors’ interest.”
“We want to make sure we deploy the capital to deliver the kind of returns we promised,” he said.
JURIC II, a blind-pool fund launched in the beginning of 2014 to invest in residential properties in regions outside of Tokyo, originally had a fundraising target of $60 million and a hard cap of $100 million. In July, the firm announced the first close for the fund, which involved two European institutional investors. At the time of the fund’s launch, PERE reported that the firm did not plan to market the fund too widely and expected to raise the capital from four investors overall.
But instead of raising additional money, the firm will now focus on deploying the capital raised. To date, $20 million has been invested in three multi-family residential properties in Osaka and Kyoto. The remaining $20 million is expected to be deployed in about five smaller-sized investments. The firm has a 13 percent IRR target for the fund. IDERA will also consider launching a follow-up fund focused on a specific sector, once the remaining capital of JURIC II has been deployed.
The early halting of fundraising by IDERA for JURIC II was not the first time the firm has stopped fundraising for a vehicle early. In March 2013, IDERA set up JURIC I as part of a joint venture partnership with the Danish multi-manager Sparinvest Property to make residential investments in Japan. As much as $20 million was raised via the joint venture, giving IDERA approximately $60 million of purchasing power after including debt. While the initial target for the JV was $100 million, with plans of bringing in other investors, IDERA later on decided to pursue a follow-on fund – which was JURIC II – instead for outside investors.