Oak Street closes Fund IV on $1.2bn – Exclusive

Oak Street Real Estate Capital has corralled $1.25 billion for its latest value-added fund, PERE has learned.

“The stability and predictability of the income is far superior than any other real estate strategy”

– Marc Zahr

The Chicago-based private equity real estate firm launched Oak Street Real Estate Capital Fund IV in the first quarter of 2017 with a $750 million target. The firm closed the predecessor vehicle in March 2016 on $515 million, which included $15 million in co-investment capital, far exceeding its $300 million target.

With its net lease strategy, Oak Street acquires single-tenant buildings with triple-net leases, where the tenant is responsible for paying the property’s taxes, insurance and maintenance costs in exchange for a lower rental rate. By year-end, the firm is slated to fully deploy Fund III and make the first acquisition for Fund IV.

“The stability and predictability of the income is far superior than any other real estate strategy,” Oak Street chief executive Marc Zahr told PERE. “The structure of the lease itself – triple net lease – eliminates the expense side of the equation for the landlord or the investor. As the landlord, especially if you’re focused on [an] investment-grade asset, you’re just focused on your revenues. When you have that kind of predictability and you know that your tenant is the one that’s going to be paying all the expenses, you can truly identify what all of your cash flows are.”

Oak Street’s investor base comprises public and corporate pension plans, endowments, foundations and single and multifamily offices. For Fund IV, the firm saw all its previous investors re-up. In addition, Oak Street also raised international capital for the first time for Fund IV, with a commitment from an unnamed Middle Eastern investor.

Investors in the just-closed vehicle include the Teachers’ Retirement System of the State of Illinois and the Pennsylvania State Employees’ Retirement System, which each allocated $100 million, and Illinois Municipal Retirement Fund, which earmarked $75 million, according to PERE data.

Oak Street is targeting a 12-14 percent net internal rate of return for the fund series. While it has not disclosed returns, PERE understands the firm’s previous three funds have all exceeded the target return range.

In August, the firm sold the majority interest in a 97-asset portfolio for $1.3 billion to Stonemont Financial Group, a private Atlanta-based investor, PERE previously reported. The buyer acquired a 96 percent stake in the triple-net-lease portfolio, while Oak Street will retain a 4 percent interest and manage the portfolio. Most of the assets came from Fund III, while four properties came from Fund II, a 2012-vintage, $136 million vehicle.

Oak Street manages about $2.5 billion in assets.