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Pennybacker raises more than $1bn for latest value-add vehicle

The firm exceeded the $600m target for its fifth value-add fund and raised additional capital for an investment vehicle linked to the main fund.

Austin, Texas-based private equity real estate firm Pennybacker Capital has raised $775 million toward its fifth value-add real estate fund, hitting the vehicle’s hard-cap.

Pennybacker V, launched in late 2018, exceeded its $600 million target and was oversubscribed as of last month, according to founder and chief executive Tim Berry.

The firm also raised $250 million, as of September, for an extended investment vehicle linked to the main fund. PERE understands the capital raised for this vehicle will only be deployed once all of Fund V’s capital has been invested. The firm expects to wrap up capital raising for this vehicle and close later this year or early next year. Berry declined to further explain the terms, legal structure or other mechanics of the vehicle.

The investor base of Fund V consists primarily of US state and corporate pensions, and much of the commitments have come from existing clients in addition to some first-time LPs.

The Texas County and District Retirement System has committed $93.75 million and the Teacher Retirement System of Texas has committed $50 million, according to PERE data. The Louisiana School Employees’ Retirement system, Texas Municipal Retirement System and Employees Retirement System of Texas were also listed as investors in Fund V.

In comparison, predecessor fund Pennybacker IV, which launched in October 2016 and closed on $510 million in March 2018, received commitments from investors such as the Employees Retirement System of Texas, Louisiana School Employees’ Retirement System, Texas Permanent School Fund and the University of Texas Investment Management Co, according to PERE data.

Like previous funds in the series, Fund V will target 13-15 percent net returns and will have an investment period of four years after the final close, Berry told PERE. Meanwhile, Fund IV has now been fully invested, and the firm has exited half of the investments in Fund III. Berry expects to fully realize the rest of Fund III over the next 24 months.

“We are really going to be patient with Fund V,” Berry said, referring to the ongoing late stage of the real estate cycle. “We have to work ten times as hard to find the same type of deal flow that we have had in the past.”

Historically, the firm has invested in the US middle market, targeting assets valued at around $10 million-$30 million in equity. The fund can invest in all property types, but the firm has generally been bearish on the student housing and certain senior housing markets, according to Berry.

However, affordable market-rate multifamily assets and experiential offices focused on technology and wellness, for example, continue to look attractive, he said.

New York-based Park Madison Partners acted as a capital raiser for Pennybacker V.