Starwood holds largest-ever final close for Fund XI – Exclusive

Overseas investors made up the majority of the vehicle’s limited partners, for the first time in the 26-year history of the firm’s global opportunistic series.

Starwood Capital Group has hauled in a total of $7.6 billion for Starwood Global Opportunity Fund XI, in what is expected one of the largest real estate fundraises this year, PERE has learned.

The Miami, Florida-based private investment firm, led by chief executive Barry Sternlicht, held a final close for the fund at its hard-cap this week, blasting past its original $5 billion-$6 billion target. The equity haul was about $2 billion more than the predecessor vehicle, which attracted a total of $5.6 billion in March 2015.

Starwood launched Fund XI in 2016 and had gathered $2.7 billion by October of that year, its largest initial closing to date. By September, the firm had already surpassed its fundraising goal, having collected more than $6 billion for the fund.

The investor base comprised public pension funds, high-net-worth investors, sovereign wealth funds, insurance companies, banks, endowments and foundations, corporate pension plans and funds of funds.

Public pensions that made large commitments to the fund included the Teachers’ Retirement System of the State of Illinois, which agreed to invest $300 million in August 2016; the Teacher Retirement System of Texas, which pledged $200 million in September 2016; South Dakota Investment Council, which earmarked $150 million in November 2016; and the California State Teachers’ Retirement System, which allocated $300 million last March, according to documents from those institutions.

PERE understands that geographically, just under 40 percent of the fund’s capital came from the US, while approximately 25 percent came from Asia and 20 percent from the Middle East, while the remainder came from the rest of the world.

Fund XI marked the first time that Starwood raised more capital from overseas investors than domestic investors in one of its global opportunistic real estate funds. The geographic diversification of its investor base became an important initiative for the firm beginning with the 2013-vintage Fund IX. Indeed, while Fund X was geographically split between domestic and foreign limited partners, the investor base of the 2010-vintage Fund VIII was more than 70 percent from North America.

To date, Starwood has invested or committed more than $1 billion of equity from the fund. Among Fund XI’s significant deals are the $1.3 billion acquisition of Milestone Apartments REIT, a transaction that closed in April and a $250 million investment in hotel operator Yotel that closed in September. The latter investment includes both the purchase of a 30 percent stake in the firm as well as future real estate acquisitions.

Fund XI is expected to be one of the largest global real estate fund closes this year. The largest property fund currently in market is Brookfield Asset Management’s Brookfield Strategic Real Estate Partners III, for which the Toronto-based firm had raised $5 billion against a $10 billion target for the vehicle as of year-end 2017. In its fourth-quarter and full year 2017 earnings report, Brookfield said it planned to close the fund later this year.