Northwood opens fund to third capital raise

The New York-based private equity real estate firm now is raising capital for the third offering of its opportunistic fund, less than a year after closing on more than $1 billion of commitments during its second capital raise in 2011.

Northwood Investors has opened up its opportunistic real estate fund, Northwood Real Estate Partners, to its third round of fundraising, marking a quick return to the market after holding a final close of more than $1 billion in the second offering of the fund last September.

Among its early investors was the New Jersey Division of Investment, which yesterday approved a commitment of $150 million to the firm, with $75 million each to be allocated to the main fund and a related co-investment vehicle, according to documents posted on the pension fund’s website.

While the size of the third offering is unclear, the vehicle raised a total of approximately $2.3 billion in its previous two offerings. Northwood raised $1.25 billion during its first offering of the fund in 2008, including $750 million in the main fund and $502 million in the sidecar. The majority of the capital in that initial capital raise was invested in 2010 and 2011. Then, the firm collected more than $1 billion in additional commitments for both vehicles during the second offering, which closed last September.

Northwood declined to comment, but PERE understands that the firm is still actively deploying the capital from the second offering. On behalf of the fund, the firm recently acquired a portfolio of retail and apartment assets in the Southeast US for more than $160 million from Charlotte, North Carolina-based real estate company Crosland Group. Northwood also is expected to take over a condominium property in Charlotte, of which the firm earlier acquired a connected mezzanine loan note at 40 percent discount. After paying off the senior loan, Northwood filed to foreclose on the property and is expected to take title in the coming months.

In its documents, the $72.14 billion New Jersey Division of Investment endorsed the investment partly because of Kukral’s “impressive” track record at Blackstone Real Estate Advisors, where he oversaw the firm’s real estate investment activity from 1994 to 2005, contributing to a gross internal rate of return of 37 percent on realized and partially realized investments as of 31 December, 2005.

In a memorandum to the State Investment Council, Timothy Walsh, the pension fund’s director, noted that Northwood demonstrated a disciplined investment approach by investing in only one transaction in the years immediately following its initial capital raise. “By maintaining stringent underwriting standards, the manager was able to take advantage of many attractive investment opportunities in 2010 and 2011 with very limited competition,” Walsh noted.

Additionally, Walsh pointed out the firm’s conservative use of leverage for the fund, where Northwood funded half of the 14 transactions completed between August 2008 and December 2011 entirely with equity. Northwood’s current total portfolio leverage is approximately 42 percent.