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EXCLUSIVE: Starwood doubles equity haul to $4.2bn

After holding a first close in June, the Greenwich, Connecticut-based firm has attracted an additional $2.1 billion in commitments for Fund X over the past four months.

Starwood Capital Group has held an interim close for its latest global opportunistic property fund, Starwood Distressed Opportunity Fund X, doubling its equity haul to date to $4.2 billion, according to a source familiar with the situation. That puts the Greenwich, Connecticut-based investment firm comfortably within the vehicle’s $4 billion to $5 billion fundraising target, with a final close expected by the end of the year. Starwood officials declined to comment.

At the start of July, PERE reported that Starwood had held the largest and fastest first close in its history, attracting $2.1 billion in commitments in just three months. Among the limited partners in the first close were a number of US public pension plans, including the Teachers’ Retirement System of the State of Illinois, which committed $300 million in May; the South Dakota Retirement System, which earmarked $150 million in June; and the Connecticut Retirement Plans and Trust Funds and the Florida State Board of Administration, both of which agreed to invest $100 million, according to documents from those institutions. Since then, the Teacher Retirement System of Texas has committed $300 million to the fund, and the Oklahoma Teachers’ Retirement System has committed $53.7 million, according to documents from those institutions.

Fund X will pursue a similar investment strategy to that of Fund IX, including investments in distressed debt; value-added, income-producing properties; and corporate recapitalizations. Fund X, however, will be more heavily weighted towards Europe, with a roughly 50-50 split between that region and the US. By comparison, the predecessor fund had an investment focus that was 60 percent in the US and 40 percent in Europe.

So far, approximately 20 percent of the equity raised for Fund X has been put to work already in both Europe and the US. In the most high-profile deal so far on behalf of the fund, PERE reported in late June that Starwood had agreed to acquire a portfolio of seven US shopping centers from Taubman Centers for a total of $1.4 billion. The purchase price was comprised of $785 million in cash and $620 million of property-level debt that will be repaid or assumed by the Greenwich, Connecticut-based firm.

According to pension documents, Fund X is targeting a gross internal rate of return of 18 percent to 20 percent, a net return of 14 percent to 18 percent and a 2x multiple. One-third to one-half of the total return is expected to be generated from current income, with an 8 percent to 10 percent current yield, and the remainder from appreciation. Currently, the fund is generating a cash-on-cash return in the low teens.