Private Real Estate Fundraising by Texas-Based Managers Dominated by Lone Star Funds – November 2014

by Jack Jackson

  • 28 Nov 2014
  • RE

Preqin’s Real Estate Online service shows 113 real estate firms headquartered in Texas, with the vast majority of these firms located around the major metropolitan centres of Dallas, Houston and Austin. This being said, the fundraising landscape is dominated by Dallas. The city is home to some of the biggest names in the private real estate business, including Lone Star Funds, Rockpoint Group and Invesco Real Estate. Yet Dallas’ fundraising power is not limited to this elite group; even when capital raised by these three firms in the last 10 years is subtracted from the aggregate capital raised by Texas-based firms, firms headquartered in Dallas still raised 37% more capital than Houston-based firms during the same time period. Comparing managers in the two cities reveals that 60% of Dallas-based firms show a preference for industrial property, compared to just 28% of managers located in Houston. Firms in Houston, however, are more likely to be investing in residential (44%), office (67%) and commercial (39%) properties than their counterparts in Dallas, the proportions of which utilize these property types are 32%, 60% and 18% respectively. 

Year-on-year fundraising for Texas-based fund managers largely depends on whether Lone Star Funds closes one of its offerings. In 2010, 12 funds were closed by Texas-based managers with $1bn raised, which significantly increased in 2011 when $11.2bn was raised through 14 vehicles, primarily due to Lone Star Funds securing over $10bn across two funds. This pattern repeated through 2012 and 2013, culminating with another two vehicles closing with $12bn of committed capital. Lone Star Funds carried its momentum into 2014, closing Lone Star Fund IX on $7.2bn in July.

When comparing the funds raised by Texas-based fund managers with all other funds raised since 2013, we see that 57% of funds managed by Texas-based firms met or exceeded their initial target size, compared with 54% of all other funds, with 19% achieving 125% or more of their target size.

The most commonly utilized strategies of Texas-based fund managers are value added and opportunistic vehicles, with 69% and 66% respectively exhibiting a preference for the fund type. Debt and distressed strategies are both favoured by 28% of Texas-based managers, while fund managers’ preference for core and core-plus strategies is relatively low, at 25% and 17% respectively. 

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