A joint venture between JP Realty Partners and KGW Real Estate is looking to raise $150 million of equity for a new fund targeting distressed commercial properties in Texas.
The joint venture is targeting institutional and high-net-worth investors for the fundraising and has received expressions of interest from a number of foreign investors, particularly those in Asia, according to Kevin White, chief executive officer of KGW Real Estate and co-managing director of the fund. “One factor creating that interest is the weakening of the US dollar and the strengthening of many Asian currencies, which provides investors there with relatively better purchasing power when investing here,” he said. Given the overall level of interest in the fund, the joint venture is likely to hold a first close in 30 days, he added.
The fund, State of Texas Real Estate Fund, will invest in high-quality distressed office, industrial and raw land primarily in Austin, the Dallas/Fort Worth area and Houston. The Dallas-based joint venture likes these markets because of their strong job growth and resulting upside potential for property values, said Mark Jordan, owner of JP Realty Partners and co-managing director of the fund. Indeed, Texas cities took the top five spots on a recent Forbes ranking of Best Cities for New Jobs.
“We are very bullish on Texas as it’s clearly leading the national recovery,” Jordan said. “The Texas economy is growing at a rate of four percent per year – four times as fast as the rest of the country. For this reason and many others, we felt compelled to focus our expertise in our own backyard.”
The fund, which has a five-year life, will begin deploying capital almost immediately. “Texas has more than $5 billion in distressed office and raw land right now,” said Jordan. “The objective is to acquire the very best properties and increase their value as quickly as possible.”
In making acquisitions and turning them around, the joint venture will rely on its property management skills and existing relationships in the Texas market, Jordan noted. During its expected 12- to 24-month holding period, the joint venture will seek to lease up and stabilise investments before putting them back on the market, he said. In this manner, the fund is targeting IRRs of 18 to 22 percent. “Both Kevin and myself understand the importance of returning capital to investors in a timely manner,” he added.
Both Jordan and White have individually managed funds in the past, but this joint venture represents their first fund totally focused on Texas real estate. Jordan has completed more than $700 million in real estate transactions during his 20-plus years of experience, while White has managed more than $300 million in international client investments over his 14 years of experience.