11/18/2009

Hawkeye Prepping 2nd Seed-Capital Fund

Hawkeye Partners has begun informally talking to institutional investors about plans for its second seed-capital fund, which could seek to raise more than $1 billion of equity.

The Austin, Texas, shop has an unusual strategy - a cross between a fund-of-funds operator and a private equity investor. It takes equity stakes in "emerging" investment managers that are seeking to oversee pools of institutional capital for the first time. It also allocates capital to the managers to invest via separate accounts and encourages the managers to set up commingled "sidecar" funds, capitalized in part by Hawkeye's institutional investors, that would co-invest with the separate accounts.

The only other real estate player pursuing the same strategy is Goldman Sachs, which raised $708 million of equity in 2007 for a seed-capital fund called Goldman Sachs Real Estate Partners. That was $8 million bigger than Hawkeye's first vehicle, Hawkeye Partners Scout Fund 1, which was launched the same year.

Hawkeye hasn't yet set a target size for the follow-up fund. But investors said the sponsor envisions raising $1 billion to $1.2 billion that would be invested with about six emerging managers. The buzz is a number of Hawkeye's previous investors have indicated a willingness to sign up.

With so many institutional investors still on the sidelines, Hawkeye could have its pick of investments. A formal marketing effort is expected early next year. The company declined to comment on its plans.

Hawkeye was formed in 2004 by Claudia Faust and Scott McArtor. Faust was previously a principal with real estate consultant Pension Consulting Alliance of Portland, Ore. McArtor was formerly global head of investor services for CB Richard Ellis Investors of Los Angeles.

The managers that Hawkeye targets are typically either veteran real estate operators that have not previously run institutional capital or new fund shops started by former employees of experienced fund operators.

Hawkeye's first fund was capitalized by eight investors, including California State Teachers, North Carolina Public Employees, Pennsylvania State Employees and Wisconsin Investment. The vehicle made four investments, the last of which closed in September. Its two most-recent investments were commitments of $150 million apiece to Meadow Partners and Garrison Investment, both of New York.

Meadow was launched in April by former Westbrook Partners managing principal Jeffrey Kaplan. Hawkeye's separate account, called Meadow Real Estate Fund, was set up in July. It will seek a 16% return by acquiring a mix of properties in New York. It will also look at "loan-to-own" opportunities, in which it would acquire a distressed note with the goal of acquiring the underlying real estate.

Meadow has held initial talks with prospective investors - including Hawkeye limited partners - for its planned sidecar fund. That vehicle would have at least $150 million of equity and would invest side-by-side with the Hawkeye separate account in some cases. It could also buy properties in London.

Garrison was launched in 2007 by former Fortress Investment managing directors Steve Stuart and Joe Tansey, with backing from New York-based Fortress. The pair began marketing Garrison Distressed Real Estate Fund 1, a high-yield-debt vehicle, earlier this year and closed on the separate account with Hawkeye in September. Garrison is still raising a minimum of $50 million for the sidecar fund and has indicated it wants to complete that effort by yearend.

Garrison seeks a 25% return by acquiring distressed mortgages with face values of $10 million to $30 million. Garrison is targeting senior debt, telling investors that less-complex investments offer the best chances of capturing gains. The firm will either work with the borrower on a restructuring or foreclose and assume control of the collateral.

Hawkeye's two other investments closed last year. Those were with Phoenix-based Alliance Residential, the nation's third-largest multi-family developer, and Sacramento-based Panattoni Development, the prolific developer of industrial and other properties. Each separate account will seek about a 20% return.

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