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EXCLUSIVE: Lone Star wraps $5.9bn fund in single close

The Dallas-based private equity firm’s latest real estate fund was oversubscribed by more than $1 billion.

Lone Star Funds has tied up fundraising for its latest property fund, Lone Star Real Estate Fund IV (LSREF IV), for which the Dallas-based private equity firm held a first and final close at the fund’s hard cap of $5.5 billion, according to a note sent to limited partners yesterday. The fund was significantly oversubscribed, with confirmed demand of $6.8 billion.

In addition to the $5.5 billion raised from institutional investors, the fund also took in capital from Lone Star chairman John Grayken, and Lone Star’s asset management company Hudson Advisors, bringing LSREF IV’s total equity haul to $5.9 billion. Grayken’s and Hudson’s commitments represent one percent and 1.5 percent of the total capital raised for the fund, respectively, with Grayken’s contribution significantly higher than the $250 million that he was originally expected to invest. Lone Star declined to comment.

LSREF IV marks one of the fastest capital raises for Lone Star, which began marketing the vehicle late in the fourth quarter last year, with an initial target of $5 billion. The fund is only the second vehicle for which the firm has raised all of the capital in a single close, following its $1.3 billion fundraising for Lone Star Residential Mortgage Fund I in December. LSREF IV also is the latest in a string of rapid fundraises for Lone Star. The residential mortgage fund took only three months to raise, while Lone Star Fund IX and LSREF IV’s predecessor, LSREF III, both were raised in less than six months. In the case of LSREF III, the first and final closes occurred in the same month.

Limited partners in LSREF IV included the Teachers’ Retirement System of the State of Illinois, which committed up to $300 million in February; Oregon Public Employees’ Retirement Fund (OPERF), which approved a $300 million investment in March; Rhode Island State Investment Commission, which pledged $30 million in March; and Arkansas Teacher Retirement System, which designated up to $30 million earlier this month.

In fact, in order to meet the first close date, Oregon State Treasury’s real estate team requested approval in March from the Oregon Investment Council, which makes investments on behalf of OPERF, for a policy variance. Under the variance, the real estate committee, rather than the OIC, would give final approval for a commitment to Fund IV. The OIC’s next meeting, which is scheduled for later this month, would have been too late for the OPERF to make the first and final close date for LSREF IV.

LSREF IV is the second multi-billion dollar fund that was raised in a single close this year. Last month, The Blackstone Group hauled in $14.5 billion in institutional capital for its global flagship property fund, Blackstone Real Estate Partners VIII, marking the first time that the New York-based private equity firm held a single close for one of its real estate funds. Blackstone also is expected to gather an additional $1.3 billion from high-net-worth investors. Both Lone Star and Blackstone were known to have held group due diligence sessions for their latest real estate offerings, which contributed to their ability to raise massive funds within a highly compressed timeframe.

LSREF IV generally will follow 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. LSREF IV, however, is understood to be more significantly weighted to Europe than its predecessor vehicle, with an allocation to the region that 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.