GreenOak’s Kalsi: deployment discipline fueled $1.55bn fundraise

The New York-based firm raised its hard-cap several times for its third US opportunistic vehicle.

GreenOak Real Estate had so much investor demand for its latest US fund that it raised its hard-cap multiple times and still ended fundraising with an oversubscribed vehicle, co-founder Sonny Kalsi told PERE.

Kalsi: led GreenOak’s biggest fundraise

The firm closed GreenOak US Fund III on $1.55 billion on Tuesday, turning investors away from the opportunistic fund. GreenOak started fundraising in March 2016 with a $1 billion target after raising $756 million in 2014 for the predecessor vehicle, PERE previously reported.

The firm’s strategy remains the same, focusing on capital deployment in US gateway cities, particularly in New York, where its headquarters are. GreenOak invested about 70 percent of the previous funds’ capital in multifamily and office, which Kalsi said is consistent with predictions for Fund III. However, he added there were a few property types in Fund II that the firm was “nervous about” investing in, such as retail and hospitality, that may now be hitting cyclical lows, presenting more attractive investment opportunities. Last year, for example, the firm invested in its first New York hotel, buying a Park Avenue hotel in the Kips Bay neighborhood for $200 million, according to data provider Real Capital Analytics.

Fund III saw about 90 percent of Fund II’s investors re-up, a testament to GreenOak’s investment focus, track record and careful deployment strategy, Kalsi said.

“From summer 2015 to summer 2017, we basically bought nothing in the US because we didn’t see anything of value,” he said. “Instead of chasing secondary and tertiary cities, we waited. I think that helped us fundraise… The fact that we didn’t stray from our strategy in Fund II is part of the reason we had success in Fund III.”

Fund II has realized about 25 percent of its assets and currently has a 13 percent net internal rate of return. Fund I, which only has one “tiny” asset left, Kalsi said, has returned net IRRs in the low 30s, as has its first Japan fund. For Fund III, GreenOak is targeting a 15 percent net IRR.

Fund III is now about 20 percent deployed. The firm’s most recent publicized acquisition was the March purchase of Santa Fe Lofts, a 132-unit multifamily building in Los Angeles for $68.8 million, according to RCA.

While its strategy remains the same as the previous vehicles, GreenOak added another year to the fund series’ usual three-year investment period.

“We feel like we’re going into part of the cycle where there’s going to be more transactions in the next three years than in the last three years,” Kalsi said, adding that he is particularly bullish about New York.

GreenOak raised solely institutional capital for Fund III, with an investor base comprising public and private pension funds, sovereign wealth funds, foundations, asset managers, family offices and high net worth individuals. About 40 percent of the investors were US-based, with another 20 percent from Canada and 40 percent from outside North America, largely in line with the fund series’ investor split. Fund III’s biggest check size was $200 million and the smallest was $5 million.

Investors in Fund III include the New York State Common Retirement System, which allocated $200 million; the Oklahoma Teachers’ Retirement System, which earmarked $60 million; and the Tennessee Consolidated Retirement System, which committed $50 million, according to PERE data. New York-based Park Madison Partners was the placement agent for Fund III.

GreenOak also wrapped up its latest European fund last month, closing GreenOak Europe Fund II on €656 million against a €500 million target. The firm also raised €185 million of co-investment capital and €70 million of committed discretionary co-investment capital.

Overall, the firm has raised about $8.5 billion of equity since its 2010 founding.

GreenOak placed ninth on PERE’s annual list of the 50 largest value-added and opportunistic managers, up from 12th in 2017.