Westbrook projects larger debt allocation to Fund XII

The New York-based manager previously had invested as much as 18% of a fund’s capital with prior vehicles in the series.

Westbrook Partners is anticipating a bigger allocation to debt investments with the latest fund in its value-add fund series, Westbrook Partners’ Fund XII, according to documents from the Public Employees’ Retirement System of Mississippi.

The New York-based manager is targeting a slightly larger fundraise than Fund XI for its latest fund. Fund XI closed on $2.51 billion in commitments in 2020. Westbrook is targeting $2.95 billion for Fund XII, also the hard cap of the fund, according to Mississippi PERS, which committed $50 million to Fund XII at its April 25-26 board meeting. The investor previously earmarked $50 million to Fund X in 2015 and $75 million to Fund XI in 2019.

The firm’s strategy focuses on global gateway markets including Boston, New York, Washington, DC, San Francisco, Los Angeles, London, Paris, Tokyo and others. London is the only city to which Westbrook consistently makes a double-digit allocation on a percentage basis, with deployment in markets based on the opportunity set. Fund XI’s biggest exposures included Tokyo, San Francisco, Seattle and Boston.

Current opportunities Westbrook has identified include office in Tokyo, industrial in the UK and senior lending on London assets, according to the documents. For this fund, the firm is forecasting more opportunities in lending than in equity buys in the majority of its target markets. However, no specific targets for debt investments were listed for this fund. Fund XI was only 6 percent allocated to debt investments. The fund with the highest allocation to debt was Fund VII, which was 18 percent debt investments.

Westbrook makes between one and three investments a year, deploying between $30 million and $50 million of equity in each transaction. It invests in a broad range of asset types, with office typically the most prominent. Westbrook significantly reduced its exposure to office in Fund XI, with a 26 percent allocation to the asset class. By comparison, both Fund IX and X were 51 percent allocated to office.

Performance outlook

The manager is targeting a 12 percent net IRR for Fund XII. Westbrook lowered its return target to this threshold in 2021 for its Fund IX, which raised $1.6 billion. Prior to that fund, the firm targeted 15 percent for the series, having had a return target of 18 percent before 2000. This reduction in return target is due to lower peak leverage post-global financial crisis, the documents outline. The firm’s target peak leverage is currently 50 percent, down from 70 percent pre-GFC.

The fund Westbrook is currently liquidating, Fund X, is projected to finish slightly under its projected 12 percent return due to office and hospitality assets struggling to return to pre-pandemic occupancy levels, the documents stated. Over 50 percent of the assets in Fund X were office properties. With 28 properties remaining in the fund, the vehicle could still meet its return target should there be a quick recovery in Western Europe, Mississippi PERS noted in the documents.

Meanwhile, Fund XI is expected to hit its return target, though it is still early in the fund’s life cycle. Of 11 assets sold out of Fund XI, six have produced a net equity multiple of 2x, the documents stated.

The manager expects the fund to close later this year or early 2024. The fund was expected to hold a first close imminently, with Mississippi PERS participating in the initial close. Around $700 million has already been committed to the fund, the documents said. As a first-close investor, the pension plan will get a 7.5 basis point discount on its annual management fee. The documents stated that the incentives reflect a “sense of urgency” from Westbrook to close the fund quickly.