REAL ESTATE - Hearthstone will be marketing its next single-family investment fund after the first of the year. The name of the fund is Path of Growth Investors II.
The company’s Chief Financial Officer Mark Porath said: "We are now in the process of working on the PPM for the fund. We are hopeful that we will be ready to talk with investors sometime during the first quarter of 2007."
The real estate fund manager sees that the timing is right to start raising a new fund. Porath said, "We have invested around 1-3 of the capital for the original Path of Growth Investors fund and now is a good time to start working on the second fund." There was a total of $450m of equity raised for the first fund.
There will be one significant change for Path of Growth Investors II. The first fund had only one investor. This was the California Public Employees Retirement System. Hearthsone and CalPERS have been investing in single-family together since 1992. The new commingled fund will be targeting smaller commitments from a variety of investors. This would include a mixture of public and corporate pension funds.
The minimum contribution is $10m. Hearthstone figures that most of the commitments will be in the range of $25-100m. The anticipated total raise is in the neighborhood of $300-500m. Hearthstone will be a co-investor. It will invest 1% of the total equity raise.
The investment strategy will be the same as the first one. This is to invest in pre-development land. The majority of the transactions for the fund will be for single-family projects. Other kinds of projects include condos and commercial development.
Most of the deals for the fund will be in the ballpark of $25 million. It will look for parcels that are located in high growth areas. This tends to be the Sun Belt markets on the East and West Coasts.
Hearthstone will be seeking deals that can produce a leveraged IRR of 25%. This yield factors in a four- to eight-year holding period.
Hearthstone in the future will be led by its new Chief Executive Officer Tom Bruin. He takes over for James Pugash, who recently passed away after losing a battle with pancreatic cancer.