Pennybacker Capital has raised one of the largest real estate funds of 2024, attracting $1.6 billion in commitments for Pennybacker VI, the latest offering in its Value Add real estate fund series.
The Austin-based firm has $3.67 billion in assets under management, but this latest equity raise is by far its largest to date. The investment is more than double the size of its previous fund, Pennybacker V, which raised $775 million, beating its $600 million target.
Pennybacker VI launched in June 2022 with an initial commitment of $447.5 million. The firm held the fund's first close in April 2023 for $940.9 million, and its second close in August last year brought the total to just over $1 billion.
Pennybacker was able to reach its $1.5 billion goal thanks to significant commitments from other Texas-based institutions: The University of Texas/Texas A&M Investment Management Company committed $250 million in March 2023, and the Texas Municipal Retirement System committed $150 million the year before. According to a press release announcing the closing, the fund attracted a “significant amount” of new commitments from institutional investors as well as its existing investor base.
With a hard cap of $2 billion, Pennybacker VI is the fourth-largest fund closing in 2024, behind Blue Owl's Real Estate Capital Fund VI, Goldman Sachs Alternatives' West Street Real Estate Credit Partners IV and Crow Holdings' Realty Partners X. All of those funds pursue value-add strategies, while Goldman is targeting debt.
Through the fund, the firm seeks to invest in U.S. real estate assets, both equity and fixed income, across sectors including retail, office, multifamily and industrial.
“We are pleased to be able to make our Fund VI commitments given the backdrop of turmoil across the real estate capital markets and our extensive experience finding and creating value during turbulent times,” Founder and CEO Tim Berry said in a press release.
Pennybacker's previous funds, the $322 million Pennybacker III and the $510 million Pennybacker IV, are 102% and 92.5% called, respectively, have internal rates of return of 15.6% and 11.4%, respectively, and total value-to-payment ratios of 1.52x and 1.38x, according to PERE data. Pennybacker V, which launched in 2019 and is nearly 80% called, has an IRR of 8.5% and a TVPI of 1.23x.
Pennybacker's closing of its latest fund above target is part of a recent trend in fundraising: About 30% of funds closed since the pandemic have exceeded their target, up from about 20% a decade ago, according to PERE data covering closed-end combined funds, co-investments and separately managed account fundraising. The trend peaked at 35% in 2021 during a historically booming real estate market before retreating slightly in 2022 and 2023.
Despite a tougher fundraising environment, managers have been more successful at beating their equity targets than they were before the pandemic. Funds raised just $19.8 billion last year, the lowest since the first quarter of 2011. The year before that, they raised just $166.7 billion, the lowest since 2016.
While there are still more funds that miss their targets than those that beat them, the percentage of funds that finish below their targets has also declined since 2021, with the percentage of funds that miss their targets being below 40% in each of the past three years. This reverses a trend over the past three years in which the percentage of funds that miss their targets increased, peaking at 45% in 2020.
At the same time, 40% of funds raised at target in the first quarter of this year, a nine-year high if that rate holds for the rest of 2024. Funding at target fell from 33% to 28% between 2018 and 2020, but has risen to the mid-30% range since the pandemic began.