Following the recent announcement that Texas-based Lone Star Funds has raised $7.2bn for its latest vehicle Lone Star Fund IX, making it the largest real estate fund to close so far this year, this blog takes a look at fundraising by private real estate fund managers based in Texas.
Fundraising over the past few years for Texas-based fund managers has looked healthy overall, with an aggregate $16.3bn raised by funds closed in 2013 and $7.8bn garnered by funds closed in 2014 so far. However, Lone Star’s offerings have dominated this market, with just $600mn raised by Texas-based firms through three vehicles in 2014 prior to Lone Star Fund IX closing in July. The story was the same in 2013, with Lone Star accounting for 74% of the aggregate capital raised throughout the year. Going back to 2008, Lone Star Funds raised nearly 58% of all capital secured by Texas-based fund managers.
Texas-based funds raise roughly the same amount of capital versus all other funds as a proportion of their initial target size. Sixty percent of managers in the state have hit or exceeded their target since 2013, as opposed to 61% of all other fund managers. Just 7% of Texas-based funds raised less than 50% of their target, compared with 8% of all other funds. In terms of experience, Texas-based firms have a higher proportion of managers with just one fund closed than all other fund managers.
Fund managers in the region have a strong preference for value added and opportunistic strategies, with 75% and 77% respectively favouring these types of funds. Thirty-eight percent of fund managers in Texas show a preference for debt vehicles, most notably Lone Star Funds. Core and core-plus vehicles are less sought after by these managers, with 23% and 21% respectively exhibiting a preference for these strategies.
There are currently 22 private funds being marketed by Texas-based fund managers, targeting $6.9bn in capital. The largest such fund in market is TPG Real Estate II, raised by Fort Worth-based manager TPG Real Estate. The fund is targeting $2bn for opportunistic and distressed investments in both real estate companies and assets at discounted prices.