StepStone Real Estate has held a $700 million final close on its latest real estate fund, StepStone Real Estate Partners III (SREP III), beating its original $500 million target.
The firm also attracted approximately $400 million in co-investment capital for its strategy of investing in special situations in the US and Europe.
StepStone Real Estate was formed in 2014 when the private markets firm acquired Clairvue Capital Partners, a San Francisco-based real estate secondaries firm founded by Jeff Giller, Brendan MacDonald and Josh Cleveland. The three executives and Dev Subhash, who previously held senior positions at Cohen & Steers and Citi Real Estate Partners, are the four partners in StepStone.
SREP III is substantially larger than Clairvue Capital Partners Fund I and II, which, along with a number of separate accounts, raised an aggregate $400 million. The team’s third fund was their first raised under StepStone.
“The difference [in the funds] really is the StepStone platform, which gave us a deeper resource base with which to raise the capital as well as to execute on the investments,” said Giller, partner and head of real estate at StepStone, in an interview with PERE. “The sizing is really commensurate with the depth and breadth of the StepStone platform.”
SREP III’s limited partners included pension funds, foundations, insurance companies, funds of funds, family offices and high net worth individuals. Approximately half of the capital was raised from investors in Europe, while the US and Asia each accounted for 20 percent. The remainder came from investors in the Middle East and Latin America. Threadmark acted as the fund’s placement agent in Europe.
Approximately 30 percent of the fund’s capital has been committed to eight investments. “We consider ourselves special situations investors,” said Giller. “We’ve done several fund wind-ups, where we’ve acquired 100 percent or nearly 100 percent of the interests from the underlying investors in the funds, and have really taken over control or shared control with the manager and converted tail-end structures into ongoing joint ventures that we co-manage with the manager.”
Additionally, StepStone Real Estate has worked on direct secondaries transactions, where the team has invested directly in portfolios owned by fund managers that are seeking to reduce their exposure or achieve realizations by selling an interest in a portfolio. The firm has invested so far across property types including office, industrial, senior housing, student housing and hotels.
While the firm targets recapitalizations, special situations and other secondaries investments through the fund, StepStone also co-invests in new acquisitions alongside existing funds and in new joint ventures with non-fund sponsors. It also invests in commingled funds. The co-investments and primary investments are made through separate accounts and other non-fund investment structures.
StepStone is targeting gross returns in the mid-to-high teens for SREP III. The fund’s capital is expected to be evenly split between Europe and the US.
StepStone Real Estate is the real estate division of StepStone, which also invests in private equity, infrastructure and real assets, private debt and hedge funds. It has $28 billion in assets under management, with 14 offices in 10 countries, including in New York, San Francisco, San Diego, Toronto, London, Zurich, Beijing, Hong Kong, Tokyo, Seoul and São Paolo.