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PERE 30: Lone Star rises as bank platforms fall

The Dallas private equity firm was the biggest riser in the 2011 PERE 30 ranking, thanks to successful capital-raising for its second real estate fund. Meanwhile, consolidation, business exits and strategic shifts among bank-sponsored platforms began to manifest themselves in this year’s ranking.

Lone Star Funds, the Dallas-based private equity giant headed by John Grayken, was the biggest riser in this year’s PERE 30 ranking, ascending an impressive 16 places to number 10.

Ever since Lone Star revealed that it aimed to raise $10 billion for its second real estate fund, Lone Star Real Estate Fund II, market peers have kept a keen eye on the Dallas-based giant to see if it could pull off such a feat, particularly in light of the dearth of fundraising happening among its rivals. At the time of last year’s ranking, the firm had corralled just $725 million, enticing certain corners to question its capital-raising credentials.

However, the past year brought better fortunes entirely as Lone Star was set to hold a final closing for the fund on a whopping $4.2 billion – easily the largest equity haul achieved over the past four quarters. Whether or not the firm’s fundraising success was the result of offering more LP-friendly terms than in its prior fund – carried interest has been reduced from 30 percent to 20 percent this time around and management fees have been reduced for those committing substantial equity chunks – Lone Star’s achievement deserves the recognition it undoubtedly will receive.

Among the top three firms – The Blackstone Group, Morgan Stanley Real Estate Investing and Tishman Speyer – each has maintained its standing in the ranking, although fundraising totals for all three have declined by sizeable amounts. Much of this can be attributed to mega funds from the 2005 vintage falling off under the ranking’s five-year fundraising window. The phenomenon also affected fundraising totals for Goldman Sachs, Lehman Brothers, Grove International and Starwood Capital, with more of the same expected next year when the popular 2006 vintage drops off.

Also hurting fundraising totals was the fact that a number of investment banks have been getting out of the private equity real estate business, meaning no new capital is being added to those firms’ fundraising totals. As poster-child of the global credit crunch, Lehman Brothers essentially has been defunct since the fall of 2008, but it made its exit official last year, spinning out its real estate group to former management. In addition, Citi Property Investors was sold outright, finding an interested buyer in Apollo Global Management, while Bank of America Merrill Lynch took a hybrid approach, spinning off its European platform to management and selling its Asia unit to Blackstone.

Looking at the PERE 30 as a whole, the cutoff for capital raised in order to make this year’s ranking rose ever so slightly from $2.45 billion last year to $2.48 billion this year. For the complete ranking and overviews on the fundraising activities of the PERE 30, click here.