FCP has closed its first $1 billion real estate fund after just six months in market, PERE has learned.
FCP Realty Fund V attracted a total of $1.188 billion in its final close last month, beating its target of $950 million. The vehicle is the largest in the firm’s 22-year history, and is 57 percent larger than the predecessor fund, Fund IV, which amassed a total of $755 million in 2018. The fund’s $1.1 billion hard-cap was raised slightly to accommodate the investor commitments, although the vehicle was still oversubscribed at that amount.
The Maryland-based real estate investment firm officially began marketing the fund in February and held a first close of $149.5 million in April, according to a filing with the Securities and Exchange Commission. By May, FCP had raised $366 million, according to a documents from the Teachers’ Retirement System of Oklahoma, and by June had identified all investors and commitments for the vehicle.
The six-month fundraise was also completed at an expedited pace compared to previous funds. For example, Fund IV, its predecessor in the series, took approximately 10 months to close. Roughly 70 percent of Fund V’s capital came from existing investors – many of which increased their commitment sizes and some of which have maintained relationships with FCP for more than 20 years – while the remainder came from new limited partners.
“Our fund has grown to a size that allows for and attracts larger institutional investors who are looking for more significant commitments or investments into our funds,” FCP co-founder managing partner Esko Korhonen told PERE, explaining the speed of the capital raise. He also credited the firm’s “very strong track record” and “broad universe of opportunities” through its national platform for the robust investor demand.
US investors represented roughly 80 percent of the equity raised, while overseas investors accounted for 20 percent – more than triple the percentage of the prior fund. More than half of the capital came from pensions, while 28 percent came from endowments and foundations, 10 percent from high-net-worth investors and family offices; and 6 percent from insurance companies and asset managers. Pensions in Fund V included Oklahoma Teachers, which committed $100 million; Teachers’ Retirement System of Louisiana, which earmarked $50 million; and Texas County and District Retirement System, which agreed to invest $125 million, according to PERE data.
Similar to its predecessors, Fund V will be focused on moderate income, Class B and C apartment properties, as well as Class A multifamily developments and value-add office assets with an emphasis on adaptive reuse and creative office. However, while Fund IV had a heavy concentration on the eastern half of the US, including the Mid-Atlantic, Southeast and Northeast regions, Fund V will target the Sunbelt markets in the southern US, according to the Oklahoma Teachers documents.
With Fund V, FCP aims to generate a 12-15 percent net internal rate of return and a 1.8x equity multiple, the documents showed. Funds I, II and III have generated net IRRs of 25.9 percent, 22.3 percent and 21.7 percent, respectively. To date, the firm has invested 10 percent of Fund V’s capital across seven investments in Texas, Georgia and New York.
Investment bank Evercore acted as placement agent, while law firms Hogan Lovells and Holland & Knight also advised on the fund.
FCP was co-founded in 1999 by Korhonen and Lacy Rice, who worked together as principals at private equity business The Carlyle Group. The firm acquires, operates and develops residential and commercial assets across the US and also deploys capital in those sectors through joint venture equity, mezzanine debt and preferred equity investments. FCP currently manages five funds totaling $3.6 billion in assets. The firm has more than 60 professionals across its offices in Chevy Chase, Maryland; Raleigh, North Carolina; Miami; Denver and Atlanta.