Follow the lagger

Equastone, a private equity real estate firm focused on commercial properties in “lagging markets,” has closed its second opportunity fund on $173 million.

San Diego-based private equity real estate firm Equastone has closed its second institutional fund, Equastone Value Fund II, on $173 million (€133 million), more than triple the size of its previous vehicle.

Led by chairman David Bourne and chief executive officer Chad Carpenter, Equastone focuses on office, industrial and R&D properties in “lagging markets.” The firm's first vehicle, which raised $53.5 million in 2005, made 17 acquisitions totaling more than $300 million. According to Bourne, the fund invested heavily in California, Arizona and Nevada in the aftermath of the last recession and the tech downturn.

“Those were the states that recovered first,” said Bourne. “The current fund is not so focused on those markets, because frankly, there have been significant price increases.”

Instead, the firm is now looking to markets such as Texas, Colorado and Oregon. In May, the firm made its second acquisition in Oregon since the beginning of the year, purchasing a $68-million portfolio of office and R&D assets in Hillsboro, a high-tech hub just outside of Portland.

Another area that has recently drawn interest has been New Orleans. At the end of last year, Equastone purchased the 28-story Pan-American Life building in the city's central business district. The firm said it was the first private equity acquisition of an institutional-quality office building since Hurricane Katrina devastated the city.

“There is absolutely no new supply,” Bourne said. “As a matter of fact, what people don't realize is that supply went down as the result of the hurricane. That has allowed for an improvement in the occupancy rate and slightly higher rental rates. We're expecting fairly slow activity, but it's positive.”

Equastone's own activity has been anything but slow. Less than two weeks after closing Fund II, the firm entered another new market, this time Atlanta, to acquire a 625,000-square-foot office building in the city's downtown area.

Prior to the Atlanta transaction, Equastone had already invested more than half of Fund II's equity capital. Bourne says the company is already putting the “final touches” on its third fund in terms of structure and design. And the firm has already identified some new markets for investment, including North Carolina.