EUROPE NEWS: Lone Star over UK

PERE Magazine May 2009: Dallas-based Lone Star Funds is targeting Britain

Texas-based Lone Star is turning its attention to the UK for the first time.

Up until this point, the firm founded by John Grayken – which has historically focused on distressed markets – has been a big investor in real estate-related investments in Germany but not in any significant way in the UK.

This, though, is about to change. Lone Star said last month the UK was now one of Lone Star Funds' “key European target markets”.

The UK generally is being seen by opportunity funds as a significant market in Europe because it appears to be providing distressed deals ahead of the continent.

However, Lone Star said that while the UK is a focus, it also sees similar possibilities on the Continent across a number of strategies. “Lone Star Management Europe sees opportunities currently for the acquisition of direct assets, real estate investment and operating companies, non-performing loan portfolios and commercial mortgage-backed securities,” it said in a statement.

Dodd: drive into UK 

To help make a push into the UK, Lone Star has hired former JER Partners' professional Angus Dodd as managing director responsible for identifying UK opportunities. He left JER Partners at the start of the year. He was stationed in London for the McLean, Virginia-based firm and was responsible for acquisitions in both the UK and Germany. Prior to joining JER he was at Parkes & Co, the real estate firm acquired by Invesco in 2001.

At Lone Star, Dodd will report to Olivier Brahin, senior managing director of Lone Star's European real estate team.

The planned expansion into the UK comes as the firm is said to be raising a second real estate fund, Lone Star Real Estate Fund II, with a reported target of $10 billion for investment in distressed commercial assets.

Lone Star raised a total of $10 billion for distressed and real estate investments in 2008, closing two funds, including Lone Star Real Estate I on $2.5 billion. The firm raises a mixture of pure real estate funds and general buyout vehicles.

Major investments related to real estate in Germany include the takeover of a previously stricken German real estate lender in 2005, which it subsequently renamed to Corealcredit. The investment was made out of Lone Star Fund 5, which raised $5 billion in 2004. Around 35 percent of the capital from that fund was deployed in Germany.

Prior to investing in Corealcredit, Lone Star made its name in the country by acquiring huge portfolios of non-performing loans.