Just two months after its launch, the third fund of Chinese private equity real estate firm Star Capital has had a first close on RMB1.1 billion (€123 million; $163 million), on its way to the RMB6 billion hard cap, according to the firm.
Star raised the capital from about 30 investors, most of them high net-worth individuals and entrepreneurs, according to Haibin Huang, Star’s deputy director for funds. About half of them are new to the firm, he added.
Chinese conglomerate Fosun International has an 80 percent stake in Star Capital, and has also promised to commit 15 percent of the fund’s size. This first close includes an RMB155 million commitment from Fosun, and that commitment will increase as the firm garners more capital, Huang told PERE. A second close is expected in October.
The firm said it had changed the structure of the fund to fit different risk profiles than before. When the fund was launched in May, Star was only offering an equity strategy. But as of the first close, Star has changed tact and has offered its investors the choice of investing in three distinct strategies: one dedicated to subordinated equity investments, one dedicated to preferred equity investments and one dedicated to investments in real estate debt.
“We chose this unique structure because every person’s time frame and return expectations is different,” Huang said. He said the firm was hoping this divided structure would also cater to the different risk appetites among its high net-worth investors.
Nonetheless, there will be limits imposed for each of the strategies. The revised offering will be capped at 22 percent of its equity eligible for subordinated equity investments, 33 percent to preferred equity investments, and 44 percent to real estate debt investments. The firm is expecting to use the debt portion of the fund to help leverage its deals, Huang explained adding he expected the capital raised in the first closing to be fully deployed within half a year.
Including the leverage, Star is expecting to garner between 18 percent and 27 percent annual IRRs for the fund. It has in fact already started investing the capital from this first close, committing RMB700 million to a 1.7 million square foot mixed-use development project joint venture in Shanghai alongside Chinese property developer Coastal Greenland.
“Including these different risk profiles within the fund, I think reaching our RMB6 billion hard cap will not be a big problem,” he added. A successful capital raising would make Star’s fund one of the largest raised for Chinese real estate to date.
Huang also revealed that Star Capital is further along in plans for a $200 million US dollar-denominated fund. The structure and strategy are still being hammered out, Huang said, but Star hopes to start fundraising for it by the end of this year.