San Francisco-based Swift Realty Partners has secured approximately $75 million in investment commitments for its first private real estate fund, which is targeting value-add opportunities in West Coast offices and industrial buildings.
The fund manager hopes it is the first milestone in its pursuit of up to $300 million in equity commitments from investors, according to a source with direct knowledge of its plans.
Investors so far consist of high net-worth individuals, pension funds, endowments and foundations, the source said. Swift is promising an 18 percent gross internal rate of return.
Swift founder Christopher Peatross and Swift Chairman Douglas Abbey, an elder statesman of the Bay Area commercial property world, have been fundraising since the beginning of the year, after Abbey joined the firm. Abbey, who is in his early 60s, co-founded AMB Property Corp. in 1983 along with real estate luminary Hamid Mogadam, who is chief executive of the successor company, Prologis Inc., a global industrial property landlord. Abbey also lectures in finance at the Stanford Graduate School of Business.
Peatross, age 47, has a history of leadership in the world of real estate investment trusts and private equity. He was the market managing-director in the Bay Area for CarrAmerica Realty Corp., a REIT, in the early 2000s then became chief executive after 2006 and Carr’s merger with an affiliate of The Blackstone Group, the private equity behemoth.
After Blackstone acquired Chicago REIT Trizec Properties Inc., also in 2006, and then Equity Office Properties Trust Inc. the next year, the companies were joined, and Peatross became the chief executive. He founded Swift in mid-2010.
Abbey might reasonably be called an expert on industrial real estate, and Peatross an expert on office real estate.
“We are very pleased to have achieved an important milestone in our fundraising, and we are looking forward to getting to work on the investment side,” Peatross said in a brief interview Aug. 13 shortly before he boarded an airplane bound for Dallas.
Closed-end private real estate funds are proliferating, and the fundraising climate is brutal, especially for first-time managers, according to sources. As of April, 450 real estate funds were in the market competing for investor capital, according to the latest research from Preqin Ltd., a market-research company that focuses on alternative assets, including real estate, infrastructure, hedge funds and private equity. That compares to 273 real estate funds at the beginning of 2008 and 428 funds at the beginning of 2011.
Collectively, the 450 funds seek to raise $162 billion, roughly the same fundraising goals as have been the case in the industry since early 2010. But a disproportionate number of managers in the marketplace—39 percent—are raising their first fund and another 21 percent have closed only one previous fund, Preqin research shows.
First-time managers are viewed with particular caution given the still-fresh and painful memories of some funds’ performance after the financial crisis, when some investors were unable even to exit funds because managers refused to redeem shares.
“Having a solid track record with a fund vehicle is probably the first or second criteria investors consider today, so new entrants face an uphill climb when embarking on a new fund format,” Mark Grinis, global leader of EY’s Real Estate Investment Fund Services said in an email in response to a reporter’s query. “New funds can reach out to new-manager programs offered by some of the larger pension funds, but the commitments available are really quite small, so it’s hard to base a fund around them.”
Since starting Swift, Peatross has amassed a portfolio with a variety of capital partners consisting of 10 Bay Area properties with approximately 2.5 million square feet, including One Concord Center, which is adjacent to the BART station in Concord; and 2121 El Camino Real in San Mateo. He also has bought and sold 140 2nd St., south of Market Street in San Francisco.