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Transwestern closes debut fund on $160m

The Dallas-based firm’s first capital raise fell far below its original $500m target, partly because of investor concerns about its limited value-added track record.

Transwestern Investment Group (TIG) has closed its maiden commingled fund, the firm said Monday.

The Dallas-based real estate investment manager raised about $160 million for TSP Value and Income Fund I, according to a statement. The firm launched the vehicle in 2014 with a $500 million target, with an unnamed seed investor closing at the end of that year, as Scott Fitzgerald, an executive managing principal, told PERE. He said that during pre-launch meetings, larger institutional investors showed interest in potentially committing to the fund, but ultimately did not invest because of the firm lacked a sufficient track record in the value-add strategy.

Through the fund, TIG is buying industrial and office assets in major and secondary US markets. The firm made its first purchase in February 2015 and now has invested about 85 percent of the fund’s capital, according to the statement. TIG set a gross internal rate of return target of 16.5 percent. The fund’s investments to date include 3.6 million square feet of industrial assets in the Midwest and Austin, Texas, and 900,000 square feet of office assets in San Jose, California; Scottsdale, Arizona; and Atlanta.

Fitzgerald said TSP Value and Income Fund I’s investor base comprises a state pension plan, a large money management organization, an insurance company and a few high-net-worth investors. The Michigan Department of Treasury allocated $50 million, according to PERE data.

TIG plans to launch Fund II in the next few months with a $350 million target and hold a first close in early 2017, Fitzgerald said. The new fund is expected to have a similar investment strategy as the first vehicle, with an increased emphasis on industrial assets because the firm has a large pipeline of opportunities in that property type.

“We have received very positive feedback on the execution of the strategy in the first TSP Value and Income Fund,” Fitzgerald told PERE. “Investors have been impressed that we have been able to demonstrate the heavy cash flow component of our strategy. Our existing lead investors have informed us that they intend to invest again, and several other large investors that could not invest in a 'first fund' or couldn’t make the timing have expressed an interest in joining us for the second fund. At the same time, we continue to see a fundamentally sound pipeline of acquisition opportunities that would allow us to construct a similar low volatility portfolio for the second fund.”

TIG manages about $3.1 billion in assets, according to Monday’s statement.