Starwood Capital Group has tied up its first round of fundraising for its latest global opportunistic property fund, Starwood Distressed Opportunity Fund X, attracting $2.1 billion in commitments in less than three months, according to sources familiar with the fund. The equity haul represents the firm's largest and fastest first close to date; by comparison, its predecessor fund, the $4.2 billion Fund IX, had raised $1.2 billion in just four months. Starwood officials declined to comment.
The firm is well on its way to meeting its $4 billion to $5 billion fundraising goal for Fund X, which, if achieved, would be its largest global opportunistic vehicle to date. In fact, PERE understands that Starwood is expecting a follow-on close of an additional $1 billion in one to two months. A final closing is slated by the end of the year.
Among the largest limited partners in the first close were the Teachers’ Retirement System of the State of Illinois and an unnamed Asian sovereign wealth fund, both of which committed $300 million in May and June, respectively; the South Dakota Retirement System, which earmarked $150 million in June; and the Florida State Board of Administration, which has agreed to invest $100 million, according to documents from those institutions.
The Texas County & District Retirement System and Illinois Municipal Retirement Fund also both have designated $50 million for the fund, while Starwood has pledged a GP commitment of $50 million. Additionally, at its board meeting last month, the Connecticut Retirement Plans and Trust Funds disclosed that it was considering a $100 million investment to the vehicle, but had not yet made a commitment.
As with Fund IX, Starwood offered fee breaks for early investors in its tenth global property vehicle. According to the Connecticut pension documents, the firm gave a five-month management fee waiver for all institutions that participated in the first close, which took place in mid-June. Meanwhile, limited partners that closed by June 30 would receive a four-month waiver. Additionally, investors are offered commitment-level fee breaks, first for commitments between $150 million and $299 million, and then for those exceeding $300 million, the documents said.
With Fund X, Starwood is targeting a gross internal rate of return of 18 percent to 20 percent, a net return of 14 percent to 18 percent and a 2x multiple. One-half of the total return is expected to be generated from current income, with an 8 percent to 10 percent current yield, and the remainder from appreciation.
Fund X, which will use 60 percent leverage, will pursue a similar investment strategy to that of Fund IX, with approximately two-thirds of its capital to be invested in distressed debt and the remainder allocated to hospitality-related assets, corporate recapitalizations and entitled land. The new vehicle is anticipated to complete 50 to 60 deals, with an average equity size of $75 million.
Fund X, however, will be more heavily weighted towards Europe, with a 50-50 split between that region and the US. By comparison, the predecessor fund had an investment focus that was 65 percent in the US and 35 percent in Europe. Fund IX is now said to be fully committed.