Paladin Realty Partners is rolling out its fourth Latin America-focused real estate fund, Paladin Realty Latin America Investors IV. Structured as a commingled fund, with separate feeder funds for US and international investors and country-specific sidecar vehicles, it will be similar in strategy to Paladin’s other three Latin America funds, with a focus on low- and middle-income for-sale housing and opportunistic commercial and distressed situations.
According to documents from the Los Angeles City Employees’ Retirement System (LACERS), which reportedly agreed to commit $20 million, Paladin Realty Latin American Investors IV will target $400 million to $600 million in commitments and a 25 percent gross internal rate of return after local taxes. The fund, which will have an investment pipeline of more than $1 billion over a three-year period, will invest 50 percent to 65 percent of its total capital in Brazil and up to 25 percent each in Peru, Costa Rica, Colombia, Chile and Mexico.
Paladin plans to hold a first close for the fund in January or February and has soft-circled more than $100 million in commitments. The fund sponsor will commit 3 percent, or up to $10 million, to the fund, with peak leverage estimated at 30 percent to 40 percent of cost. Fund investors will be subject to a management fee based on 1.75 percent of committed capital during the investment period – post-investment period, the basis switches to invested capital less realisations – and an incentive fee of 20 percent, subject to a 10 percent annual preferred return and 60:40 catch-up provision based on the aggregate performance of all investments.
In its presentation to LACERS, Paladin said its strategy in Latin America requires a lower dependency on leverage, distressed pricing and market timing compared to the typical US or European opportunistic strategy. The firm cited moderate to high GDP and employment growth, high population growth, particularly among the middle class, and a low to moderate supply of new product and competitive capital in the targeted region as reasons for its enthusiasm.
In 2009, Paladin raised $454 million for Paladin Realty Latin America Investors III, as well as $100 million for a Brazil sidecar that closed in May. That fund currently is 82 percent committed to 14 investments in Brazil, Mexico, Peru, Costa Rica and Colombia and has a projected return of more than 25 percent, with a 2x multiple after local taxes. LACERS, the California State Teachers’ Retirement System and the Pennsylvania Public School Employees’ Retirement System were among the investors that committed to the fund.
The firm’s earlier funds included the 2006 Paladin Realty Latin America Investors II, which closed with $200 million in commitments and produced a 13 percent IRR, and the 1998 William E Simon & Sons Realty Partners, with a fund size of $76 million and a 4 percent IRR. Since its founding in 1998, Paladin has invested in more than $5 billion in assets across its three Latin America funds, which account for about 80 percent of its $970 million in assets under management.