Lone Star Funds is anticipated to hold a first and final close for its latest property fund, the $5 billion Lone Star Real Estate Fund IV (LSREF IV), next month, according to two people familiar with the fund. PERE understands that this would be one of the only times that Dallas-based private equity firm has tied up fundraising for a vehicle with just one close. Lone Star declined to comment.
According to documents from the Oregon Investment Council (OIC), which makes investments on behalf of the Oregon Public Employees Retirement Fund and other funds, real estate staff at the Oregon State Treasury is in the process of negotiating a $300 million commitment to LSREF IV. Oregon's real estate team noted that Lone Star was scheduled to hold a first close for its latest property fund, Lone Star Real Estate Fund IV (LSREF IV), on April 14, which would be two weeks prior to the OIC's next meeting, and that those investors that did not make it into the initial close would likely have a reduced allocation to the fund, which is likely to be oversubscribed. Lone Star has already established a hard cap of $5 billion for LSREF IV. However, PERE understands that investors have very recently been informed that the firm is likely to hold a single close for the fund.
In order to meet the first close date, Oregon's real estate team requested approval from the OIC for a policy variance, where the real estate committee, rather than the OIC, would give final approval for a commitment to Fund IV. The committee, unlike the OIC, is limited to new capital commitments of up to $250 million for an existing manager. The real estate team is seeking the higher commitment amount in order to “achieve improved economics via both a discounted management fee and higher preferred return hurdle.”
The OIC has approved both the variance request for the fund commitment to be brought to the committee, as well as for the committee to approve up to $300 million to LSREF IV. Oregon's real estate committee plans to meet later this month to secure a full subscription commitment and preferred economic terms offered to first closers in the fund. The committee also will determine the ultimate allocation to the fund, which will be publicly disclosed at the OIC's April meeting.
Oregon has invested more than $2 billion to Lone Star since 1995, and has backed every offering from the firm. Most recently, the pension plan committed $100 million to Lone Star Residential Mortgage Fund I in December and $300 million to LSREF III in September 2013.
Limited partners that already have committed to the fund include the Illinois Teachers Retirement System, which pledged $300 million last month. Additionally, Lone Star's founder and chairman, John Grayken, is expected to contribute $250 million of his own capital to the fund.
If the firm were indeed to hold a single close for LSREF IV, it would mark only the second time that it has done so for a fund. Lone Star raised all $1.3 billion of capital for Lone Star Residential Mortgage Fund I in only one close in December. Moreover, the firm has established a clear trend of rapid fundraises as of late: the residential mortgage fund took only three months to raise, while Lone Star Fund IX and LSREF III both were raised in less than six months. In the case of LSREF, the first and final closes occurred only three weeks apart.
LSREF IV generally will pursue a similar strategy to its predecessor fund, LSREF III, which closed on $7 billion in October 2013 and targeted commercial real estate debt and equity investments in the Americas, Western Europe and Japan. A key difference between the vehicles, however, is that LSREF IV will be significantly weighted to Europe, with as much 70 to 80 percent of the fund allocated to the region, and the remainder split evenly between the United States and Japan. By contrast, LSREF III had a geographic allocation that was approximately 40 percent in the US, 40 percent in Europe and 20 percent in Japan.