With the initial close representing 87 percent of the vehicle’s $7.5 billion target, the Miami-based private investment firm is on track to raise a total of $9 billion-$10 billion by the end of the second quarter for the vehicle, which has a $10 billion hard-cap.
The first close for Fund XII is the largest ever for Starwood and more than double in size than that of its predecessor fund, Starwood Opportunity Fund XI Global, which attracted $2.7 billion in its initial closing in 2016. That fund ultimately collected $7.6 billion in 2018.
Fund XII is currently the largest commingled real estate fund in market by target size, according to PERE data. The next largest, CIM Group’s CIM Opportunity Zone Fund, has a $5 billion target.
Starwood declined to comment, but PERE understands that the firm began marketing Fund XII at end of the second quarter and raised all the capital in the first close remotely. Returning investors included the Teachers’ Retirement System of the State of Illinois, which agreed to invest $300 million; Teacher Retirement System of Texas, which committed $200 million; Texas County and District Retirement System, which pledged $175 million; and Illinois Municipal Retirement System, which designated $100 million, according to PERE data.
Limited partners in the fund will pay a base management fee of 1.25 percent on committed and invested capital and an asset management fee of 0.25 percent on the gross asset cost, according to documents from the Oklahoma City Employee Retirement System. Investors that participate in the first close will receive a five-month management fee waiver, the documents stated.
Fund XII will have a heavier focus on distress than its predecessors. Distressed investment opportunities will include buying non-performing loan pools, public to private investments, buying assets from public companies, doing recapitalizations and providing rescue capital. To date, $500 million of equity from the fund has been earmarked across four deals.
Fund XII’s target allocation by geography will be 40-60 percent Europe, 40-60 percent US and 0-15 percent Asia and Australia, according to a source familiar with the fund. Target allocations by sector will be 20-30 percent multifamily and affordable housing, 20-30 percent hospitality, 20-30 percent office, 15-20 percent industrial and 0-10 percent other investments, which can include land and niche sectors such as student housing or senior housing.
The fund is targeting a 14-16 percent net internal rate of return or an 18-20 percent gross return and a 1.6-1.7x net multiple, according to OCERS documents. As of June 30, Fund XI was generating a 1.08x net multiple, compared with a 1.29x top-quartile multiple and 1.21x median multiple in OCERS’ real estate benchmark, and a 19.2 percent IRR, compared with a 13.5 percent top-quartile return and an 8.7 percent median return.