EXCLUSIVE: Lone Star to hold first close on $5bn fund

Lone Star Funds has launched its latest commercial real estate fund, Lone Star Fund Real Estate Fund (LSREF) IV, with a $5 billion hard cap, according to a filing with the US Securities and Exchange Commission yesterday. The fund is the second-largest global real estate vehicle currently in market, along with Starwood Capital Group’s Starwood Distressed Opportunity Fund X, which also has a $5 billion equity goal, and behind The Blackstone Group’s Blackstone Real Estate Partners VIII, which is targeting at least $13 billion, according to PERE Research and Analytics.

Lone Star declined to comment, but the firm is likely to hold a first close on Fund IV in mid-April, with an anticipated closing date of April 17, according to two sources familiar with the matter. The size of the first closing was unclear at press time. However, PERE understands that how much capital is raised in the initial closing, and how closely it approaches the $5 billion hard cap, will determine whether or not there will be a second and final close. Additionally, Lone Star’s founder and chairman, John Grayken, is expected to contribute $250 million of his own capital to the fund. 

LSREF IV generally will pursue a similar strategy to its predecessor fund, LSREF III, which closed on $7 billion in October 2013 and targeted commercial real estate debt and equity investments in the Americas, Western Europe and Japan. A key difference between the vehicles, however, is that LSREF IV will be significantly weighted to Europe. According to sources, the LSREF IV allocation to Europe could be as high as 70 to 80 percent, with the remainder split evenly between the United States and Japan. By contrast, LSREF III had a geographic allocation that was approximately 40 percent in the US, 40 percent in Europe and 20 percent in Japan.

LSREF III represented one of the fastest real estate fundraises of its size category in recent years, having launched and closed in approximately four months. Limited partners in the vehicle included the Teacher Retirement System of Texas, Oregon Public Employees Retirement Fund; South Dakota Investment Council; New York State Teachers' Retirement System; and the Maryland State Retirement and Pension System.

Lone Star has been raising a string of multi-billion-dollar funds as of late. The launch of LSREF IV comes one month after the firm collected a total of $1.3 billion in December for Lone Star Residential Mortgage Fund I, which focuses on investments in newly originated, performing US single-family residential mortgages and related transactions; and six months after it closed on $7.2 billion in July for Lone Star Fund IX, which invests in single-family residential debt, corporate and consumer debt, and other financially-oriented investments and operating companies in the Americas, Western Europe and Japan.