Pennybacker closes Fund IV above target – Exclusive

The firm’s founder and chief executive says a major differentiating factor for investors is its analytics-driven investment approach.

Pennybacker Capital has closed its latest fund on $510 million, blowing past its $400 million target, PERE has learned.

The Austin, Texas-based firm launched Pennybacker IV in summer 2016. Since the value-add fund launch, the firm moved Thomas Beier, a partner and one of the original members of the Pennybacker team, to Denver to oversee western US efforts, and hired David Stahl away from Lone Star Funds as managing director to oversee its special situations platform.

Pennybacker invests across property types in the US, with an emphasis on Sunbelt states. Fund IV’s investor base is all domestic investors, with a mix of state and corporate pensions, endowments and foundations, including the Employees Retirement System of Texas, which earmarked $25 million, according to PERE data.

The firm is targeting a 13-15 percent net internal rate of return for the fund series. Pennybacker II, which closed in May 2012 on $105 million, has fully realized all investments and generated a 26 percent net IRR to investors. Pennybacker III, which closed on $322 million in 2015, has returned about 57 percent of paid-in capital to date and is about one-third realized.

Tim Berry, the firm’s founder and chief executive, told PERE that a major differentiating factor for investors was Pennybacker’s emphasis on technology, data and innovation. The firm started a portfolio data and analytics initiative four years ago to collect, analyze and benchmark all performance, accounting and rental data from its assets in a customized, cloud-based system called Pennybacker Alpha.

“Rather than working from an antiquated and unreliable spreadsheet system, we wanted to develop a management system that would allow us analyze performance metrics across funds and property types in real time, from any location,” Berry said.

The firm uploads more than 250,000 data pieces monthly, encompassing performance, accounting and rental data. Berry’s team is building an artificial intelligence learning capability into the system, which will learn from past data and other predictive variables to identify potential risks and opportunities in current and prospective investments.

Pennybacker also uses analytics to identify sub-markets for investment opportunities as well as more accurately forecast its existing portfolio performance.

Outside of its internal data management, the Pennybacker team monitors new real estate technologies through an internal innovation committee.

Although Berry believes these technology efforts put his firm five years ahead of its peers, he said that fundraising is still not easy.

“That’s what a lot of folks don’t realize – it takes a lot of time and purposeful effort,” he said. “We’re constantly challenging the team to push the limits on innovation. The phrase ‘this is how we’ve done it in the past’ is not an accepted answer at Pennybacker.”