Starwood holds $1.2bn first close for Fund IX

Starwood Capital Group has held a first close on its ninth global real estate fund, raising $1.2 billion of equity for the vehicle in just four months, PERE has learned.

The Greenwich, Connecticut-based firm launched Starwood Distressed Opportunity Fund IX, which is targeting between $2 billion and $3 billion of equity, in early August and held its first close in December, according to people familiar with the matter.
 
In addition, for the first time in its history, Starwood offered management fee breaks to institutional investors joining the first close and to larger investors committing more than $150 million of equity. Sources were unable to confirm details of the fee breaks provided, and Starwood declined to comment.
 
Starwood is expected to hold a final close of the fund by the summer, the sources added, with an interim close expected sometime in January or February. The investors joining the first close are believed to be a mix of institutional investors, including corporate and public pension funds, sovereign wealth funds, endowments and foundations.
 
In offering fee breaks to investors, Starwood is mirroring an industry-wide trend of incentivising its fundraising activities, particularly when it comes to a first close. The Blackstone Group reportedly cut its management fees for certain investors joining the first close of the Blackstone Real Estate Partners VII fund, which held a $4 billion first close in August and is targeting $10 billion of equity in total. The Carlyle Group also offered reduced annual management fees to about one-third of the investors in Carlyle Realty Partners VI, which held a final close on $2.34 billion of equity in early December, helping the firm raise more than its targeted haul of $2 billion.
 
Starwood’s Fund IX will focus predominantly on distressed opportunities in the US, although the Greenwich, Connecticut-based firm will be able to invest between 20 percent and 30 percent in Europe and a further 10 percent in emerging markets.
 
Starwood, which scooped three awards in last year’s Global PERE Awards, has averaged more than 30 percent gross IRRs on its funds over the past 20 years. It previously raised capital for its global opportunity funds and hospitality vehicles from institutional investors, including the California Public Employees' Retirement System, the New Mexico Public Employees' Retirement Association, the Teachers Retirement System of Louisiana and the Pennsylvania State Employees' Retirement System, among others, according to pension documents.