By Jon Peterson
New York City-based Related Companies plans on making some investments in the San Francisco as part of commingled fund where it just completed a capital raise of $1 billion. The name of the commingled fund is the Related Real Estate Fund II.
“San Francisco figures to be a targeted market for our new investment fund for two main reasons. One is that this region has very high barriers to entry as far as building new projects. This will make the properties that we buy, renovate, stabilize and sell very attractive. We also look for properties in markets that have job creation and rising wages. This is something that is definitely going on in San Francisco,” says Justin Metz, a managing principal for Related Fund Management.
[contextly_sidebar id=”CBDjfYrCf2WcJilTwkTNPpFDmugK2m55″]Related Companies does have development offices set up around the country so it can find the best opportunities in which to invest. It already has a development office in San Francisco. “We think that to have a local operation in our targeted markets is very important for our business and helps us track and find good properties to buy for our funds,” said Metz. The company has a national scope to investments in U.S. gateway cities and major urban centers.
The real estate manager will be only investing in existing assets. These will be the major property types, except for industrial properties. The investment strategy will focus around residential, office, retail and hotel assets. A typical situation might be where it would invest $20 million to $30 million of equity to buy the property and invest another $80 million to $100 million to renovate the asset.
The leverage amount placed on the portfolio for Fund II would be in the range of 60 percent to 65 percent. The commingled fund has a three-year investment period, which starts right now. Related has already spent some of the capital for the commingled fund. It has closed on deals in Atlanta and Dallas and has a hotel/parking garage transaction under contract in the Beacon Hill area of Boston.
Related plans to close on four to six transactions on an annual basis. Most of the deals will be with the acquisition of individual assets. In some cases the real estate manager will consider taking a run at some portfolio transactions.
The $1 billion capital raise was funded from a variety of institutional investors. One of these was a $50 million commitment from the Indiana Public Retirement System. The other investors included sovereign wealth funds, public and corporate pension funds, endowments, foundations and family offices.
The capital raise was a significant amount more than Related raised for Related Real Estate Fund I. It raised $825 million for this fund and had a final close on the capital raise in June of 2012. Around 95 percent of the capital for this fund has been allocated.