By Jon Peterson
Houston-based Lionstone Investments has raised $745 million of commitments for its latest commingled fund that goes by the name of Lionstone U.S. Value-Add Five. One of the manager’s main targeted markets will be to find investment opportunities in the greater Seattle market.
“Seattle is a market that we have invested in the past, and we hope to find more assets to acquire for the new fund. The market there is so strong, led by companies like Amazon and Microsoft. The area also produces a concentrated and very high-quality workforce, which we find attractive,” says Dan Dubrowski, co-founder and head of capital formation for Lionstone.
Lionstone has been an active investor in Seattle for some time. In 2019, the real estate investment firm had acquired the Gateway I building in Bellevue for $48.5 million, according to public records. The year before, the manager had sold the 110 Atrium building in Bellevue for $111 million, as stated in public records. Kirkland is another area of Seattle where the manager had been active.
Some of the other markets where Lionstone is hoping to be active going forward include Portland, Salt Lake City, Austin, Atlanta, Nashville and Raleigh. The property types that the manager plans to invest in include multifamily, office and mixed-use retail assets. The investment company likes all of its property types to have some kind of a value-add component.
There are two existing assets in the fund now with a third one coming soon. One of the properties is the office building portion of the Liberty Station asset in San Diego. This is a 181,171 square foot office building bought for $77.1 million. Lionstone will add value by leasing up some of the 19 percent vacancy in the property, mark-to-market rollover of some existing leases and put in limited speculative investment upgrading the finishes of common area lobbies and restroom.
The other property was the purchase of the 318,618 square foot 777 Aviation office asset in El Segundo, Calif. This property was bought for $171 million. The manager plans to lease up the vacancy, which was at 28 percent when the property was acquired.
The next investment for Value-Add Five will be an apartment complex in Raleigh, N.C. that was just delivered to the marketplace. Lionstone has this asset under contract. The value-add play here is to take over the leasing risk on the property.
The commingled fund is planning to have a total capitalization of around $1.5 billion on a gross basis. The maximum leverage limit on the fund is 60 percent, but the manager could end up having leverage of 50 percent on the fund. The targeted returns for the fund are in the range of 12 percent to 14 percent. The holding period for the assets in the fund is underwritten for five years.
