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Walton Street closes seventh fund

The Chicago-based private equity real estate firm fell short of its equity goal for its latest opportunistic vehicle after more than two years in market. 

Walton Street Capital has tied up the capital raise for its latest commingled real estate fund, Walton Street Real Estate Fund VII.

The Chicago-based private equity real estate firm, led by managing principal Neil Bluhm, collected $1.4 billion in commitments for its seventh property fund and related vehicles, according to a source familiar with the matter. Walton Street declined to comment.

About two-thirds of the limited partners in Fund VII were repeat investors, many of which came in during the final close. Among them was the Public Safety Personnel Retirement System (PSPRS) of the State of Arizona, which agreed last month to invest up to $30 million in direct and up to $20 million in co-investment capital. PSPRS previously invested in Walton Street Real Estate Fund V as well as Walton Street Mexico Fund I, according to pension plan documents.

Earlier investors included the Teachers Retirement System of the State of Illinois, Indiana Public Retirement System, Texas Municipal Retirement System and Teachers Retirement System of Louisiana. Other limited partners comprised corporate pension plans, foundations, endowments, sovereign wealth funds, banks, insurance companies, fund of funds and other pooled vehicles and high-net-worth investors. Additionally, Walton Street co-invested $62 million of the total equity haul, up from an original $50 million.

Fund VII, however, failed to reach its original $2 billion target, despite an extended fundraising period. Walton Street has been marketing the vehicle since September 2011 and initially had targeted the first closing for December 2011 and a final close for approximately a year later, according to documents from the Contra Costa Employees’ Retirement Association and Louisiana Teachers. However, Fund VII did not complete its first close until the fall of 2012, attracting $710 million in commitments. The vehicle was at the halfway mark a year later, with $1 billion in commitments.

Among the challenges associated with the capital raise were concerns from existing and prospective investors about the performance of Fund V, which raised a total of $1.6 billion in June 2006. The fund was generating a total value multiple of 0.67, while a related sidecar was yielding a 0.41 multiple as of November 30, according to documents from the New Jersey Division of Investment (NJDOI).

Walton Street, however, is said to have restructured approximately $1 billion of debt in Fund V and anticipated to return nearly 100 percent of the vehicle’s capital to investors over the long term. Meanwhile, the firm appears to have rebounded with the successor vehicle, Fund VI, which was producing a 1.22 multiple as of November 30, the NJDOI documents said. Both Fund V and VI, along with Walton Street Mexico Fund I, were among the vehicles included in New Jersey’s sale of real estate fund stakes on the secondary market last year. Interestingly, however, the buyers, NorthStar Realty Finance and Goldman Sachs Asset Management, paid above the net asset value for the Walton Street fund stakes, which was said to be an indicator of the potential future upside of those interests.

About half of the capital in Fund VII currently is pre-specified among 18 investments, which include office transactions in New York, Boston, Chicago, Seattle and San Diego; retail in Hawaii and Denver; hotels in Chicago and San Francisco; and multifamily in the Southeast US. The vehicle, which has a net return target of 16 to 18 percent, will be focused on value-add and opportunistic investments in commercial real estate, particularly in the office and hotel sectors. Specific investment strategies include single-asset and portfolio transactions; debt, complex ownership and special situations; larger-scale deals; targeted development; international ventures; platform investments; and illiquid interests.

The fund is anticipated to be 90 percent invested in the US, with the remainder to be deployed in Mexico, India, Brazil and Europe. Equity investments will range between $10 million and $100 million in size.