Lionstone closes fourth value-added fund

The Houston-based firm had a $400m-$500m target for the latest vehicle in the series.

Lionstone Investments has closed on its latest value-added fund in the middle of its target range.

The Houston-based firm, which invests across risk-return profiles, founded its value-added investment series in 2005 and launched its most recent fund, Lionstone US Value-Add Four, in 2015. The firm closed LVA Four on a total of $450 million, which was raised through a commingled fund and a co-investment sidecar, according to an announcement in late January.

The firm was targeting between $400 million and $500 million for the vehicle, which did not have a hard-cap, Dan Dubrowski, a co-founder and the firm’s portfolio manager for core, core-plus and value-added funds, told PERE.

Lionstone is seeking a 12-14 percent net internal rate of return for the vehicle. Dubrowski did not disclose returns for LVA Three, which closed in 2013 on $300 million, but said the fund is exceeding its target returns.

LVA Four’s investor base included university endowments, foundations, family offices and large public and corporate pension plans, according to the fund closing announcement. The Teacher Retirement System of Texas earmarked $100 million for the vehicle, according to PERE data. The firm does not use a placement agent for the fund series.

With LVA Four, Lionstone will pursue investments in 17 US cities. To date, Lionstone has purchased three buildings on behalf of the fund, starting with the September 2015 acquisition of GreenStreet, a Houston mixed-use development. The firm’s most recent purchase was an office building in Bellevue, Washington for $81.5 million, according to data provider Real Capital Analytics.

“We are a company that focuses on buying, fixing and owning the places for the most productive people in the US,” Dubrowski said. “In the case of this [LVA Four], we’re using analytics to understand what forces are shaping certain cities that are causing certain neighborhoods and certain buildings to become more valuable.”

The firm manages about 40 percent of its $5.5 billion in assets under management in value-added funds and separate accounts, Dubrowski said. Core and core-plus strategies comprise about half of Lionstone’s assets under management, with investments typically made through separate accounts and joint ventures. Opportunistic investments make up the remaining 10 percent of its AUM.

Lionstone closed its latest opportunistic fund, US Land Two, in 2013 on $125 million, and is investing the capital in land acquisitions and development.