Lone Star closes on sixth fund with new and old capital

The Dallas-based firm rolled over uncalled capital from a predecessor vehicle to help close on $4.7bn for Lone Star Real Estate Fund VI.

Lone Star Funds has closed on its sixth opportunistic commercial real estate fund with a total of $4.7 billion of equity, from both new and old sources.

Launching the latest Lone Star Real Estate Fund in December 2018 and closing just six months later, the Dallas, Texas-based firm exceeded its $3 billion target.

The $4.7 billion raised included capital from institutional investors and a commitment from the manager, but also uncalled capital from predecessor Lone Star Real Estate Fund V that was rolled over into this latest fund.

In previous LSREF vehicles, Lone Star made a 1 percent co-investment, according to 2016 documents from the Oregon Investment Council.

Investors from LSREF V that had equity rolled over into LSREF VI received a reduced management fee in the new fund, PERE understands. It isn’t clear how much capital was rolled over.

Investors in LSREF VI included the Teacher Retirement System of Texas, South Dakota Investment Council, Maryland State Retirement and Pension System and New Mexico Educational Retirement Board, among others. All four public pension funds were repeat investors from LSREF V, which launched in December 2015 and closed on $5.8 billion in April 2016.

Like LSREF V and the other predecessors in the series, LSREF VI follows an opportunistic real estate investment strategy and will be invested in properties of all sectors globally, according to PERE data.

However, LSREF VI also sticks out as an anomaly in the fund series ­– and the world of private real estate – due to its reduced size. While most managers have been progressively raising larger commingled funds, Lone Star introduced its latest fund with a notably smaller fundraising target. This year’s top 10 managers on the PERE 100 list raised 5.2 percent more money than last year. The top five managers on the same list accounted for $130.5 billion in equity raised and each has raised a firm-record sized vehicle in the last 12 months.

Lone Star’s latest fundraising target of $3 billion was smaller than the $5 billion a piece for both LSREF IV and V. A cut in target size is often a response to poor performance of a predecessor fund, but Lone Star’s track record remains strong, PERE previously reported. While LSREF IV and V are still midway through their investment programs, LSREF II and III were generating internal rates of return of 15.95 percent and 26.26 percent, respectively, as of June 30, 2018, according to the Oregon Public Employees’ Retirement Fund.

Lone Star declined to comment.