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Newport Capital returns to fundraising trail

The Chicago-based firm is seeking $250m for its second value-added vehicle.

Newport Capital Partners is lining up capital for its second value-added vehicle.

The Chicago-based private equity real estate firm is seeking to raise $250 million for Newport Capital Partners Fund II and recently hired advisory firm William Blair as a placement agent for the fund. Newport plans to continue the same strategy from its debut vehicle, investing in multi-tenant retail properties in the Midwest’s six largest metropolitan areas.

“Our strategy is focused on properties that are located in submarkets that have high population density, which leads to barriers to entry,” Derrick McGavic, the firm’s founder, told PERE. “We don’t want to be a very large manager. We want to be a focused manager with a focused strategy.”

At the start of the year, Newport raised $28 million in seed capital for the fund, with $3 million from the firms’ principals and $25 million from the Chicago Teachers’ Pension Fund, according to the retirement system’s meeting minutes. The firm has used this initial capital to acquire three investments and is now preparing to officially start the fund’s marketing efforts. Newport has a net internal rate of return target for the vehicle between 12.5 percent and 13.5 percent.

Investors in Newport Capital Partners Fund I, which launched in March 2012 and closed at the end of that year on $45 million, included the Illinois Municipal Retirement Fund, State Universities Retirement System of Illinois, Chicago Teachers’ Pension Fund and Franklin Templeton Investments, according to PERE Research & Analytics.

The firm has also been busy with a separate focus from its value-added vehicles. Around the time that the first fund launched, Newport received a portfolio takeover assignment on behalf of multiple Chicago pension plans. The retirement systems invested $68 million in a real estate fund called the DV Urban Portfolio that was run by a former Chicago mayor’s nephew and an attorney who once led the law firm where President Barack Obama worked. After allegations of mismanagement, the pension officials received a court order to remove the fund’s principals, according to media reports.

Newport was tasked with liquidating the Chicago-area portfolio in 2012 and now has just one asset under contract and one going on the market this month.