Related launches energy-focused property fund

The new offering would be one of the first to focus on property investments in markets benefitting from the US shale oil boom.  

The Related Companies is said to be targeting $300 million for a new real estate fund that would capitalize on the surge in energy exploration and production activity in the US. The new vehicle would be one of the first to pursue property investments in markets that are seeing robust growthfrom the country’s shale oil boom.

Through the fund, the New York-based real estate firm plans to buy and build up to 6,000 multifamily properties in US shale oil markets, primarily North Dakota’s Bakken Shale and Texas’ Permian Basin and Eagle Ford Shale, where supply-demand fundamentals are considered to be the strongest. In all three markets, energy exploration and production activity has been responsible for record levels of job, income and population growth, which have sent residential real estate demand skyrocketing. Meanwhile, available supply has been constrained because of the lack of construction labor, limited debt capital, non-institutional land owners, inadequate infrastructure and, in North Dakota, a weather-constrained building season.

The capital in the opportunistic vehicle would be evenly divided between the two states. In North Dakota, 70 percent of investments would be development because of the shortage of permanent housing in the area, while the remainder would be acquisitions. In Texas, however, up to 80 percent of transactions would involve purchases of existing Class C multifamily properties, which the firm would seek to upgrade to B or B-minus assets. The fund likely would comprise 25 to 30 individual properties and invest in deals with a gross value of $15 million to $30 million, according to sources familiar with the fund.

Related declined to comment, but PERE understands that the firm has been marketing its new vehicle to a mix of endowments, sovereign wealth funds and pension plans. The firm is expected to wrap up fundraising in the next 60 to 90 days, sources said.

Related isn’t the first private equity real estate firm to make a big real estate play in the US shale oil markets. Kohlberg Kravis Roberts, for one, partnered with Pfeffer Capital and CP Realty in 2012 to buy land to develop The Ridge at Harvest Hills, a 163-acre master-planned residential community in Williston, North Dakota. Related, however, is one of the first fund managers to raise a vehicle that focuses specifically on energy-related real estate in the US.

To date, the firm has invested in two major deals in US shale oil markets, both on behalf of its $825 million Related Real Estate Recovery Fund. In March, Related announced the acquisition of a 3,000-unit apartment portfolio in Midland and Odessa, Texas, in which it intends to invest significant capital to upgrade the properties. Also this year, the firm purchased 60 acres in Watford City, North Dakota, where it plans to develop 240 residential units, a third of which will be constructed this year.

Related is on track to have a busy fundraising year, as it also reportedly is coming to market with a successor vehicle for the Real Estate Recovery Fund. Fund II is said to have a $750 million equity target, similar to its predecessor.