Lone Star to tie up $6.6bn fundraise

The Dallas-based private equity firm is expected to hold a second and final close next week for its third commercial real estate vehicle, which was oversubscribed.

After a little over four months on the capital-raising trail, Lone Star Funds is due to wrap up fundraising for its latest global commercial real estate fund, Lone Star Real Estate Fund (LSREF) III, PERE has learned. The Dallas-based private equity firm, led by John Grayken, is expected to hold the second and final close for the fund next week at its hard cap of $6.6 billion, according to a person familiar with the fund. Lone Star officials declined to comment. 

Limited partners in the fund include the Teacher Retirement System of Texas and Oregon Public Employees Retirement Fund, both of which committed $300 million last month; South Dakota Investment Council, which has earmarked $150 million; Texas County & District Retirement System, which has agreed to invest $50 million; and Dallas Police & Fire Pension System, which committed $25 million. Separate from the $6.6 billion that will be raised from third-party investors, additional commitments will come from Grayken, who has committed $330 million of his own money to the fund, along with employees of Hudson Advisors, its in-house servicing affiliate, which would bring the total equity haul for the fund to approximately $7 billion.

PERE understands that Lone Star has informed investors that the fund was oversubscribed but had not indicated by how much requested commitments had exceeded the $6.6 billion hard cap. According to a filing made with the US Securities and Exchange Commission yesterday, the firm held its first closing on October 4 and had gathered nearly $3.1 billion for LSREF III through the main US-based vehicle. However, Lone Star also indicated in the filing that an additional $2.87 billion of capital was raised in the initial closing through a Bermuda-based vehicle. Essentially, the firm had amassed its entire $6 billion target in the first close, with only $637 million left to be raised.

LSREF III, currently the largest property fund in market, represents one of the fastest real estate fundraises of its size category in recent years. In fact, the fundraising outpaces that of Blackstone Real Estate Partners (BREP) VII, which at $13.3 billion is the largest real estate fund ever raised. The New York-based private equity and real estate giant collected $4 billion in just four months for BREP VII’s first close in April 2011, hitting its hard cap 18 months later in October 2012. The LSREF III equity haul also was more rapid than the capital raise for Lone Star Fund (LSF) VIII, the latest offering in the firm’s residential, corporate and consumer debt fund series. LSF VIII closed in late May and attracted $5.1 billion in commitments in approximately six months.

In June, PERE reported that Lone Star had begun informing investors that it was in the process of setting up a successor fund to LSREF II, which at the time was more than 75 percent invested. The demand for the fund, which originally had a $6 billion hard cap, was so strong that that the limit was raised to $6.6 billion, Bloomberg reported last month. In September, PERE revealed that Lone Star already had raised more than $3 billion for the fund in just three months.

LSREF III will focus on distressed debt and equity investments in multifamily and commercial real estate assets. In a strategic shift from LSREF II, which was more heavily weighted to US distressed debt investments, the new fund is expected to be approximately 40 percent invested in the US, 40 percent in Europe and 20 percent in Japan.