01/05/2011

Exeter Mapping $500 Million Industrial Fund

Exeter Property, which has actively acquired industrial buildings over the past couple of years, is seeking to raise up to $500 million of equity for its second value-added fund.

The Plymouth Meeting, Pa., firm shoots for a 14-16% return, generally by acquiring, developing or redeveloping industrial and flex properties in the East and the South. With a shortage of properties on the market after the downturn, Exeter has also scooped up distressed industrial mortgages at hefty discounts.

Exeter has been an active buyer since 2008, when it completed raising $392 million for its first commingled vehicle, Exeter Industrial Value Fund. The vehicle, which has more than $1 billion of buying power with leverage, is now about 85% invested.

For the first fund, Exeter has made about half of the acquisitions in secondary markets, believing that primary markets were overpriced. This time around, Exeter is telling investors it will aim to make up to 90% of purchases in primary markets, because it thinks pricing has normalized and those areas are best positioned for growth.

The shop will continue to focus on opportunities involving distressed loans and forced sales. It targets properties that have vacant space or maturing leases. It favors business parks and seeks to achieve critical mass in key distribution markets.

In one deal last year, Exeter reached a preliminary agreement to buy 2.2 million square feet of warehouses in the Dallas and Houston areas for about $100 million, or $45/sf, from Granite Properties of Dallas. It ended up buying the Dallas portion for about $46 million. The company hasn't proceeded with the Houston properties, but may still buy some of the them. HFF is the broker.

Exeter was also involved in a major sale last year, trading 17 properties totaling 4.4 million sf to New York fund shop Blackstone for $190 million. At the $43/sf price tag, Blackstone's initial annual yield will be about 8%. CB Richard Ellis brokered the deal.

Exeter is just starting to market the follow-up vehicle, Exeter Industrial Value Fund 2. The buzz is that it is shooting to line up $150 million for the first equity close within several months. The company isn't using a placement agent. Credit Suisse handled the marketing of the first fund.

Exeter was formed in 2006 by several former executives of Liberty Property of Malvern, Pa., including Ward Fitzgerald.

The company contributed $7 million of the total equity to the debut fund, which carried a 1.5% management fee. The profit split called for a 9% preferred return for limited partners, after which Exeter was entitled to 60% of the profits until amassing 20% of cumulative distributions. It would then get 20% of any additional profits. New York State Teachers was among the investors in the fund, which is allowed to invest up to 10% of its equity in Canada, with investor approval.

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