Rocky Mountain high

Denver-based KSL Capital, a former KKR affiliate, has raised more than $1 bn for its first standalone real estate fund.

Although the hospitality and resort sector is increasingly drawing the interest of private equity and real estate investors, it has been drawing Mike Shannon's interest for more than 20 years. In 1985, Shannon became the 27-year-old chief executive officer of Vail Associates, the recreation and real estate company that controlled the Vail and Beaver Creek ski resorts.

It was at Vail that Shannon met Henry Kravis, a fellow board member of the Vail Valley Foundation. In 1992, the duo, along with Vail Associates veteran Larry Lichliter, formed KSL Recreation—K for KKR, S for Shannon and L for Lichliter—to focus on investments primarily in the high-end resort and leisure sector.

According to Shannon, KSL Recreation made a total of 15 investments over the next decade, primarily in the resort sector. KKR, via three different vintage funds, provided the $524 million (€410 million) of equity for KSL Recreation's deals; thus far, the 13 investments that have been realized have generated a return of five times their initial equity.

Shannon describes KSL's approach to the business as “very operational.” Rather than lease out the retail space at a resort to a third party, for example, KSL will often build up its own retail presence at a site, generating substantially greater revenues and profitability from the same footprint. Other examples, from getting better utilization out of the bed base at Beaver Creek to adding spas and restaurants to a property, abound.

“It's making the same asset work harder,” Shannon says.

Following the $2.2 billion sale of KSL Recreation in 2004, Shannon formed KSL Capital Partners, a Denver, Colorado-based private equity real estate firm, along with Eric Resnick and Steven Siegel. (Lichliter, now retired, serves on the firm's board of advisors.) Just last month, the new firm closed its first standalone private equity fund, raising more than $1 billion.

Hoping to replicate their earlier successes, KSL Capital Partners recently closed its first deal: the acquisition of the Rancho las Palmas resort in Rancho Mirage, California, for $56 million. Shannon and his team are very familiar with the market: in 1993, their predecessor company purchased the nearby LaQuinta Resort from the RTC for $276 million. The deal eventually earned more than ten times their initial investment.

GEM Realty Capital closes on $360m
Chicago-based GEM Realty Capital closed its GEM Realty Fund III on $360 million (€282 million). The vehicle, which will focus on properties, loans and operating companies, plans to use leverage to acquire up to $1 billion in assets and will concentrate on the US market. To date, the fund has invested in a portfolio of six Sofitel hotel properties in US gateway markets, 1,600 units of student housing at major universities, and announced the development of a Hilton and Waldorf-Astoria resort near Walt Disney World in Orlando, Florida.

PSERS commits to two real estate funds
The $57.1 billion (€44.7 billion) Pennsylvania Public School Employees' Retirement System agreed to two investments in real estate funds at its August meeting, according to spokeswoman Evelyn Tatkovski. It will invest up to $125 million in Broadway Real Estate Fund II and up to $100 million in the Avenue Real Estate Fund. The pension fund allocates 7 percent of its money to real estate. PPSERS also signed off on increasing the allocation of publicly traded real estate investments from 1.4 percent to 1.8 percent and reducing its allocation of capital to private real estate from 5.6 percent to 5.3 percent.

NY teachers look towards China
The $89 billion (€70 billion) New York State Teachers' Retirement System approved an investment of up to $50 million in the ING Real Estate China Opportunity Fund. NYSTRS is reportedly the lead investor in the $300 million ING vehicle. The move comes around the same time that the California Public Employees' Retirement System formed a China-targeted joint venture with Houston-based developer Hines.

Westbrook lands $75m from Allstate
Opportunity fund Westbrook Real Estate Fund VII, the latest offering from New York-based Westbrook Partners, has received a $75 million (€59 million) commitment from Allstate Real Estate Investments. The Westbrook vehicle, which hopes to raise $1 billion, will target a 20 percent return on investments in the US, Europe and Japan. The commitment was Allstate's first under new head of real estate investment Edgar Alvarado. The Northbrook, Illinois-based real estate investment arm of insurer Allstate expects to make commitments in excess of $400 million this year.

Morgan Stanley has sights on record
Morgan Stanley Real Estate is reportedly starting to raise its next global investment fund, Morgan Stanley Real Estate Fund VI International, which may break the $6 billion mark (€4.7 billion), surpassing the record for the largest real estate vehicle ever raised. That honor currently belongs to The Blackstone Group, which raised $5.3 billion for its fifth real estate vehicle earlier this year. In March, Morgan Stanley closed its fifth international fund on $4.2 billion.

Allstate picks new head of real estate
Edgar Alvarado has been promoted to head of real estate funds at Allstate Real Estate Investment Group. He was previously a portfolio manager at the company. Alvarado, who joined Allstate in 1993, has approximately 20 years of real estate experience. He holds an MBA from the Kellogg School of Management at Northwestern University and a degree in finance from the University of Illinois at Chicago. He will report to Sam Davis, senior managing director for real estate investments. Allstate real estate funds have approximately $1.5 billion (€1.2 billion) in capital commitments outstanding.

Lawyer signs on with Lubert-Adler
Leonard Klehr, who played a role in the 1997 inception of Phildelphia-based Lubert-Adler and has served as a key legal advisor to the firm, will reduce his role at Klehr, Harrison, Harvey, Branzburg & Ellers in order to sign on as a partner and vice chairman with the private equity real estate firm. Klehr will still keep an office at the law firm he helped found, which focuses on real estate law, securities litigation, land use and private equity fund formation. In his new role, Klehr will reportedly lead Lubert-Adler's investments in distressed equity and distressed debt.

Fife joins Westport
Veteran Wall Street executive Howard Fife has joined Westport Capital Partners, the real estate investment firm launched last year by former Oaktree executive Russell Bernard, as a principal and head trader of the firm. He will help round out the firm's high-yield and distressed expertise, according to management. Fife comes to the Westport, Connecticut-based firm from the high yield and distressed investing group of investment bank Jeffries, where he worked with large hedge funds. Before he joined Jeffries in 2002, he was also a director at Lazard, Freres in the international high yield and distressed trading department and worked on the launch of the bank's debt recovery fund in 2001. Westport is reportedly raising its first two offerings, a value-added fund and a high-yield debt vehicle.

Former Starwood executive to raise hotel fund
Ted Darnall, who has served as president of Starwood Real Estate Group since 2002, has stepped down in order to develop a fund specifically focused on building aloft and the upscale Extended Stay by Westin hotels, two brands which he helped create. The aloft concept is described by the firm as “carrying the DNA” of its upscale W hotels adapted for the select-service market. In June, Starwood said it expects to break ground on alofts near the Philadelphia airport and in Lexington, Massachussets, later this year. Darnall joined Westin in 1996.