REPE Fund Profile Series - Part Five: Lone Star Funds

Welcome to Part Five of our Fund Profile Series. If you’ve been following along, you’ll see we’re steadily working our way through the top 50 global real estate private equity (REPE) firms, as per the 2020 PERE 100 list. 

Each Fund Profile briefly summarizes each fund’s history, as well as getting into the details of the funds themselves. And to help you prep for your upcoming real estate private equity interviews, we also outline a few of each firm’s key real estate equity investments in recent years. 

So following on from Part Four, which focused on Singapore-based GLP, up next: we’re holding Lone Star Funds up to the lens.

Some background about Lone Star Funds

Lone Star Funds is a Dallas-based private equity firm that specializes in distressed debt acquisitions across the U.S., Canada, Europe, and Asia. 

The firm was founded as Brazos Partners in 1993, and was originally a joint venture between the Federal Deposit Insurance Corporation and a Texas billionaire, Robert Bass. It was formed for the purpose of acquiring around 1,300 distressed bank assets during the U.S. savings & loan crisis of the early 1990s. 

At its helm, John Grayken ran Brazos Partners as Chairman and CEO, and continued to run the firm in the same capacity when the original venture was reborn as Lone Star Funds in 1995. To complement Brazos Partners, Grayken also founded Brazos Advisors which played the role of the asset management arm of the fund—today, Brazos Advisors is known as Hudson Advisors, and the asset management firm continues to work alongside Lone Star Funds.

The Lone Star family (including Hudson Advisors) employs a team of over 900 staff members across 20 global offices, including Tokyo, São Paulo, Montreal, and Luxembourg. In the U.S., the firm also has hubs in New York and Miami, along with its Dallas headquarters.

In terms of investments: to date, the company has raised over $85.4B of capital and, as of December 31, 2020, it currently manages $22B worth of assets via its Hudson Advisors business.

Where does Lone Star focus its real estate equity investments?

Given its reputation in the distressed debts market, Lone Star has earned the rather unflattering classification of ‘vulture investor’, as it “swoops” in to take advantage of financial institutions’ bad loan portfolios as a result of various crises in different (developed) countries. 

With that being said, the firm invests across a variety of asset classes including office complexes, retail developments, single and multifamily units, industrial real estate, and hospitality and leisure properties, as well as in non-performing/sub-performing loans and in REITs. 

When it comes to asset management, the Hudson Advisors business specifically focuses on commercial real estate underwriting (including loans and real estate owned (or REO) assets), portfolio management of both residential and commercial real estate, and advisory and case management services relating to property tax. 

A few of Lone Star Funds’ notable deals

While we always recommend for you to look into a real estate private equity firm’s deals to get a better understanding of how and why they invest in the way that they do, there are some funds that prefer to keep their deals under lock and key! 

Nevertheless, we’ve managed to dig into some of the Lone Star’s overseas deals and funds to help get you started:

Start Mortgages DAC 

In 2014, Lone Star Funds acquired Start Mortgages DAC, an Irish subprime mortgage lender, which included a discounted loan portfolio worth around EUR €677M (approximately $788M) as part of its purchase—the loans in this portfolio were written shortly before the 2008 global financial crisis.

After the firm refinanced and restructured these loans into a new fund (European Residential Loan Securitisation 2017-PL1 DAC), Permanent TSB (PTSB), an Irish bank, sold Lone Star a portfolio of non-performing loans for EUR €1.3B (approximately $1.5B) in 2018.

Quintain Limited 

In 2015, Lone Star Funds acquired Quintain, a publicly listed British property investment company, for £745M (just over $1B) and then took it private. The Quintain portfolio included development permission for over 8.8 million square feet of land and up to 8,500 homes in one of the largest urban regeneration sites in Europe.

Lone Star eventually shelved its plans to sell Quintain for £3B (around $4.1B) in 2021 because of the declining situation caused by the Coronavirus pandemic—but if that deal had gone ahead, it would have been the largest deal so far in the UK’s rental housing sector.

Propertize B.V. 

In 2016, Lone Star joined forces with JP Morgan to acquire Propertize, the real estate division of a government-owned Dutch bank (SNS Reaal), for EUR €895M (around $1.04B) from the Dutch government. At the time of the deal, the lender had a loan portfolio worth EUR €5.5B (around $6.1B).

Following the acquisition, Lone Star has since transformed Propertize into its loan and real estate asset management subsidiary in the Dutch market.

Novo Banco 

In 2017, Lone Star agreed to recapitalize Novo Banco, a state-rescued Portuguese bank, with EUR €1B (approx. $1.16B) in exchange for a 75% stake—with the Portuguese government’s Banking Resolution Fund retaining the remaining 25%.

This deal wasn’t without its controversy, given that Novo Banco had already received almost EUR €3B (around $3.5B) from the Resolution Fund. During an audit, it was suggested that the Ministry of Finance didn’t have sufficient evidence relating to the terms of the sale process—even though it was the Ministry that set up the agreement!

ServiHabitat Servicios Immobiliarios, S.L. 

In 2018, CaixaBank agreed to sell 80% of its real estate assets including Servihabitat to Lone Star Funds for EUR €7B (about $8.1B). The real estate portfolio had a total value of EUR €12.8B (around $14.9B) at the time of the sale.

Today, Servihabitat is Lone Star Funds’ real estate and loan asset management subsidiary in the Spanish market.

Now back to you...

We hope you found this Lone Star Funds REPE fund profile helpful for increasing your industry knowledge—but remember: it’s only part of the preparation you need for your upcoming real estate private equity interview. 

At Leveraged Breakdowns, we can help you with the right strategy to sell yourself at the interview stage. Let us help you set yourself up for your dream career in real estate private equity: check out all the programs we offer to support your next steps. 

 

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About the Author: 

Melody Sadé Abeni is a London-based writer who specialises in commercial real estate content. As a generalist member of the Leveraged Breakdowns team, she crafts detailed posts geared towards those curious about the real estate private equity life. 

In her former professional life, Melody supported senior corporate executives as a global mobility consultant and did her time in both management consulting and specialist asset management firms.