Lone Star targets $20bn for distressed real estate, bank assets

Last year the firm raised $10bn for two tandem real estate and distressed investment funds. This year it aims to double the dry powder with two similarly inclined vehicles.

Dallas-based private equity firm Lone Star Funds is raising two separate funds with a combined target of $20 billion, according to a source close to the situation.

The US firm is raising its second real estate fund targeting $10 billion for investment in distressed commercial assets, while a separate vehicle, Lone Star Fund VII, is raising the same amount to take advantage of distressed residential mortgages and defaulting corporate bonds and loans.

Lone Star declined to comment.

Both funds will have a global outlook but will focus primarily on the United States where the purchase of toxic bank and real estate assets, by both the US government and private companies, is expected to increase as part of a rescue programme by the US Department of the Treasury.

If the fundraise is successful, Lone Star Real Estate Fund II will be the second largest real estate fund ever raised, after Blackstone Real Estate Partners’ VI which closed on $10.9 billion in April 2008.

Lone Star raised $10 billion for distress and real estate investments last year, closing Lone Star Real Estate I on $2.5 billion and Lone Star Fund VI on $7.5 billion in July. The funds were raised in order to run side-by-side making global “opportunistic” investments in distressed debt, distressed real estate and real estate entities, according to reports at the time. More than 80 percent of both funds have been invested to date.

Founded in 1995, Lone Star has more than $24 billion of capital under management.