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Federal Capital collects $529.2m for second fund

The Maryland-based private real estate firm saw its latest investment vehicle oversubscribed, with commitments from limited partners such as the New York State Teachers’ Retirement System.

Federal Capital Partners has completed fundraising for its second real estate fund, FCP Realty Fund II, raising a total of $529.2 million in commitments. About 90 percent of the limited partners were institutional investors such as pension plans, endowments and foundations, including the New York State Teachers’ Retirement System, which agreed to invest up to $50 million in the fund in October 2011.

Fund II held a first close on $122.5 million in equity in February 2011 and captured an additional $204 million five months later, according to filings with the US Securities and Exchange Commission. Federal Capital extended the fundraising period to July 2012 after an influx of new investors around that time and additionally raised Fund II’s original $500 million hard cap to accommodate several large commitments that were made toward the end of the fundraising.

Return investors made up more than half of the fund, and all but one of the institutional investors in Federal Capital’s first fund – which closed on $230 million in 2008 – made follow-on commitments to Fund II. The firm did not use a placement agent.

“FCP is extremely pleased with the response to the Fund II offering, which was over-subscribed in a challenging economic and fundraising climate,” said Esko Korhonen, managing partner, in a statement. “We are excited at the prospects for our fund given the opportunities created by continued disruptions in the capital markets and the positive growth outlook for markets in the mid-Atlantic region.”

Fund II is pursuing a similar value-added investment strategy to Fund I, pursuing equity and debt investments predominantly in the multifamily sector, as well as opportunities in office, retail and industrial. However, since the first fundraising, Federal Realty has expanded its geographic focus from the greater Washington DC and Baltimore area to also include Pennsylvania, Virginia, Delaware, West Virginia, New Jersey and the Carolinas.

To date, Fund II has invested $103 million, or about 20 percent, of its capital on 14 transactions totaling $367 million. Among the more significant deals made on behalf of the fund was the acquisition of 1616 Walnut Street, a 279,770-square-foot office building located in Philadelphia, through a joint venture with local investor and developer Cross Properties and 806 Capital. Plans call for the firms to eventually convert the property to residential use.

Federal Capital was formed in 1999 by former Carlyle Group principals Korhonen and Lacy Rice. The firm currently manages about $2.4 billion in assets and has more than doubled its staff to 34 over the past several years.