Grosvenor eyes up to $500m for development fund

Grosvenor Fund Management is raising up to $500 million to target multifamily development deals across the US.

The Philadelphia-based arm of the London investment firm is looking to raise between $250 million and $500 million for the Grosvenor US Multifamily Fund, people familiar with the matter have told PERE.

US multifamily

Real estate investors have increasingly turned to the US multifamily sector as it benefits from the coming of age of the echo-boom generation, rising demand and a lack of supply. However, it is the lack of supply that is prompting some to also eye development projects today.

Grosvenor is expected to hold a first close on the vehicle in the third or fourth quarter of this year, targeting largely US and European investors.

As construction lending for multifamily starts also to ease, other multifamily investors are planning to increase their development pipeline to take advantage of supply-demand dynamics.

Listed multifamily REIT and private equity real estate fund manager, AvalonBay, said it expected to start an estimated $700 million of development in 2011, on top of roughly the same amount in 2010. “We really ramped up our development activity in 2010 because we believe we are leaving the bottom of the business cycle and are entering an up cycle,” senior director John Christie told the March issue of PERE magazine. “As such, we want to be out of the gate quicker than anyone else.”

Although AvalonBay restricts its development activity to its REIT operations, Christie said the that lower cap rates descended in the multifamily sector the more attractive the spread between development and acquisition became for the entire sector. The key, though, was being shovel-ready with a development today, he added.

Meanwhile, Irvine, California-based multifamily development and investment firm Sares-Regis is raising its debut institutional vehicle, and has brought fund of funds Penn Square to help it co-sponsor and raise the vehicle.

The $200 million Sares-Regis Group Western States Multifamily Fund will see Penn Square handle all fundraising and investor relations for the vehicle, acting as co-sponsor of the vehicle and investing alongside Sares Regis in relation to the GP co-investment. The Sares-Regis fund will be separate from Penn Square's own multi-manager funds, which consultant The Townsend Group acts as investment advisor to.

Kenneth Gladstein, chief investment officer of Sares-Regis' Northern California operations, said in the April issue of PERE that the driving force behind the firm's decision to launch its first institutional fund was due to the increasing complexity of many multifamily deals today, and the certainty of closing that discretionary capital provided.

“As the multifamily market evolves following the downturn, opportunities are emerging that don't always fit a certain box that our investors are seeking,” he said, adding that one of the greatest benefits of a private equity real estate fund would be its discretionary nature. “Sellers are very much concerned about a buyers’ ability to close,” he continued. “Providing sellers with that certainty of execution, and having the ability to move quickly, can make all the difference when you're trying to source off-market deals.”