Federal Capital Partners Closes CRE Fund with $1.5B in Buying Power

Opportunities in the multi-family, office, retail and industrial sectors will be the focus of Fund II, which, when leveraged, will allow for a total of approximately $1.5 billion of investments.

Robert Morris Building at 1701 Arch St., Philadelphia

Four years after closing its initial $230 million real estate private equity fund, Federal Capital Partners has closed on the $529.5 million FCP Realty Fund II L.P. Opportunities in the multifamily, office, retail and industrial sectors will be the focus of Fund II, which, when leveraged, will allow for a total of approximately $1.5 billion of investments.

The economy has hardly recovered, yet Fund II was over-subscribed. “We were very fortunate to have a great base of investors from Fund I, the vast majority of whom came into Fund II, and many of whom increased their investments,” Esko I. Korhonen, FCP managing partner, told Commercial Property Executive.  “And then we went out and we raised money from pension funds, endowments, foundations and additional investors. I just think our strategy, our performance and our team resonated with them and the market that we’re in.”

FCP’s strategy is one that has been in place since Korhonen and partner Lacy I. Rice founded the firm in 1999. It is a strategy that focuses on sustainable cash flow. With that goal in mind, the firm has invested a great deal in the multi-family sector. Acquisitions include Phase I of downtown Durham, N.C.’s West Village, a restoration and conversion of the former Liggett & Myers Tobacco Co. warehouses; the property is being transformed into an apartment community with ground-level retail. FCP also provided $7.5 million in mezzanine debt to the company behind the redevelopment and construction of the Robert Morris Building at 1701 Arch St. in Philadelphia for the purpose of repositioning the 14-story building as a luxury apartment destination.

“I think that today a lot of our investors are really looking for that; they want to see cash flow,” said Korhonen. “We’ve been able to make a fair amount of distributions in Fund I from operations and as well as refinancings. Even before we sold any assets, we returned a fair amount of capital, and I think that’s appealing to them because a lot of them are looking for that cash-on-cash return that they depend on every year.”

There is something else that may have attracted investors to Fund II. “We really invested in the company in anticipation of our growth,” Korhonen said. Investors, he added, meet with the company to obtain a “level of comfort.”