REAL ESTATE- Heathstone has raised $600m of equity for its latest commingled fund, Hearthstone Housing Partners III. This will be one of the largest single-family investment funds in the country.
There will be up to 70% leveraged employed on the fund. This will give the fund a total capitalization of $1.3 billion.
Hearthstone attracted two of the largest US public pension funds - both the California Public Employees Retirement System and California State Teachers Retirement System contributed $300m.
The really significant investor in the fund is CalSTRS. Its investment in Housing Partners III is its first ever investment in single-family housing. CalSTRS had made residential part of its investment plan for fiscal year 2006. Its other commitments to this property type should be almost completed by the end of fiscal year 2007.
Hearthstone was glad to bring in a new investor to its commingled funds. Its Executive Vice President Mark Porath said, “We are very pleased and excited that CalSTRS selected us as their first investment in single-family.”
Hearthstone is planning on starting the investment process for Housing Partners III this fall. The fund manager will be looking at deals of various sizes. Porath said, “Our equity commitment on the low end would be $25 million and on the high end at $150 million.”
Hearthstone will be looking for deals that can produce 17% to 20% leveraged IRRs. The holding period for these returns will vary from 28 to 36 months. The real estate fund manager has done much better than this with its previous funds. They have averaged leveraged IRRs of 22% to 23%.
Housing Partners III is the core product than Hearthstone invests through. It looks at a variety of deals. Some are joint venture transactions with builders on single or multiple projects. There also are off balance sheet transactions that are typically done with large public homebuilders. The investment strategy will be the development of new single-family housing and condos.
Hearthstone will be mostly looking for deals in the Sun Belt states. This typically means from California to the Carolinas. There is a five-year investment period for Housing Partners III.