Starwood Capital raises $530 mn from Korea for $7.6 bn fund

Starwood Capital Group, a US real estate investment firm, has raised around $530 million from South Korean institutional investors for its largest fund, Starwood Global Opportunity Fund XI, which held the final close at $7.6 billion on Feb. 28.

The capital commitments from South Korean investors represented about 7% of the fund size which reached its hard cap and surpassed its original target of $6 billion, according to an investment banking source.

Its limited partner base includes pension funds, sovereign wealth funds, banks/insurance companies, funds of funds, foundations/endowments, wealth managers/family offices and high net worth individuals from the United States, Canada, Asia, the Middle East, South America and Europe.

Starwood did not identify individual investors in the fund, while the California State Teachers Retirement System (CalSTRS) reportedly committed $300 million to the opportunity fund.

The latest fund focuses on opportunistic investing in global real estate with a diversified portfolio by geography and asset class, targeting a 17-20% gross IRR and a high single-digit cash-on-cash yield.

It will target assets located in submarkets where the Connecticut-based company believes capital flows will increase and real estate fundamentals are positioned to improve, with expected equal focus on both the US and Europe.

It expects approximately half of the fund-level return to come from current income or operating profits.

In addition, Starwood plans to build scale through the aggregation of smaller individual investments in specific product types, including multifamily and hospitality, across Starwood Capital funds. This scale creates the opportunity for bulk sales — private or public — if accretive to value, it added.

On Feb. 26, Starwood said that Starwood Global Opportunity Fund XI has acquired a portfolio of seven Hilton hotels throughout the UK for £135 million.

Since its inception in 1991, Starwood Capital has raised over $44 billion of equity capital and currently has approximately $55 billion of assets under management.

By Chang Jae Yoo

yoocool@hankyung.com