How market disruption fueled Heitman’s fundraising spree

The Chicago-based firm closed on three funds totaling $3.2bn in three months, benefiting in part from the ‘favorable element’ of the 2021 vintage.

Heitman is having the best fundraising summer of its 55-year history, closing three vehicles on a total of $3.2 billion in the past three months.

The Chicago-based firm’s capital formation success spans the risk-return spectrum. It raised nearly double the target for its fifth North American value-add fund, Heitman Value Partners V, closing on $1.9 billion. It also met its fundraising goals of $750 million and $500 million, respectively, for its second global core-plus fund and its second North American high-yield debt vehicle.

Including leverage, the Chicago-based manager has close to $8 billion of investing capability across the three funds. Heitman’s next-largest series of closings within a short timeframe came just before the global financial crisis, and the aggregate amount raised was about half the size of this latest trio of fundraises, senior managing director Lewis Ingall told PERE.

Covid-19 stifled the firm’s fundraising efforts initially, Ingall said, as asset valuations were brought into question and in-person meetings became impossible. Heitman began marketing HVP V just weeks before lockdown orders went into effect, and started marketing the core-plus fund, Global Real Estate Partners II, in 2019. But by April 2020, investor sentiment had already started to turn, and the disruption proved beneficial to the capital raising efforts, he said.

“The backdrop of what was happening in the global capital markets, specifically the rise in the broad equity markets, gave people the room to continue allocating to real estate,” Ingall said. “And the perception of the [2021] vintage was also a favorable element.”

Heitman harnessed this sentiment to satisfy borrower demand for subordinated debt. It launched Real Estate Debt Partners II at least six months earlier than it had initially planned, Ingall said, bringing it to market in December 2020. “We saw an opportunity in the market materializing as a result of the conditions that began last year that, based on prior experiences, we thought would create an attractive market to have debt capital.”

That thesis has played out as expected thus far. Heitman has deployed 20 percent of HDP II, with a roughly even spread between transitional, construction and senior loans, mostly to borrowers in the multifamily and student housing sectors.

All three funds comprised roughly 60 percent US investors and 40 percent international. Roughly 30 percent of the capital came from first-time investors, Ingall added, though he noted that the makeup of that group is similar to Heitman’s returning investor pool in terms of both geography and institution type. Heitman did not use third-party capital raisers for any of the funds.

Despite the funds being in market and closing at the same time, Ingall said there are few overlapping investors between the vehicles. “Investors try to position different strategies within their own real estate portfolios to complement things they’re already doing,” he said. “We were able to strike the responsive chord with people depending on their individual views of the market and the set-up of their portfolios.”

Heitman manages roughly $46 billion from 10 offices around the world. It held the 45th spot in the 2021 PERE 100 ranking after raising $3.7 billion during the previous five years.