Starwood Nears End of $7.5B Capital Raise for New Fund, Will Target San Francisco

Bay Area Council, Bay Area, San Francisco

By Jon Peterson

New York City-based Starwood Capital Group is in the later stages of raising $7.5 billion of capital for its next commingled fund that goes by the name of Starwood Distressed Opportunity Fund XII, according to a statement made in a board meeting document for the Teachers’ Retirement System of Oklahoma. A final close of the fund will be in the first quarter of next year.

The San Francisco market will likely be in the manager’s plans for some of its investments made in the United States. The board meeting document stated that Starwood intends to make investments in gateway markets including San Francisco and New York, since the investor believes these markets will experience the most distress over the next couple of years. The overall fund will be mostly invested in the US and Europe.

To date, Starwood has raised a total of $5.6 billion of equity from a total of approximately 140 limited partners. One of the new investors to come into the fund is Oklahoma Teachers. The pension fund last week approved a new commitment totaling $150 million, as stated by the investor in a board meeting document.

Fund XII is a distressed opportunity fund, and it will be looking for assets that can produce net IRRs in the range of 14 to 16 percent. The transactions for the fund will take many forms. This includes large portfolios and providing capital for entity level deals, as well. This flexibility will allow the fund to acquire single assets in the mid to upper market level that require equity amounts in the range of $25 million to $75 million.

Based on current market conditions Starwood is looking at investing most of the capital for the new commingled fund in four main property types. One part of this will be residential, which could make up 20 percent to 30 percent of the total investment. This may include a combination of multifamily and affordable housing properties. Office and hotel properties could likely make up 20 percent to 30 percent of the fund, as well. There will be an industrial component ranging from 15 percent to 25 percent, as well. Finally, there is a possibility that up to 10 percent of the fund could be invested in un-named other property types based on opportunities that arise from the investment activity.

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