With the outlook for industrial real estate remaining as bright as ever, it seems every day brings an announcement of a new industrial investment fund. CRG, the real estate investment and development arm of Chicago-based real estate and construction firm Clayco, is among the most recent slew of firms who are following this trend. In late July, CRG launched its U.S. Logistics Fund II (UALF II), with the goal of developing $1.5 billion’s worth of new e-commerce and distributions centers across the U.S. over the next three years.
This is not the first such venture for the company—in 2018, CRG launched U.S. Logistics Fund I, which funded the development of $421 million in logistics facilities. When the sale of the final asset in that fund is completed, CRG estimates it will deliver a 23 percent net IRR to its limited partners.
The current fund is open to a wide range of investors, including high-net-worth individuals and family offices, a recent change in strategy for the company which in the past has largely relied on equity-raising from institutional investors. In addition, CRG has set a goal of reaching 10 percent of qualified investors among women, people of color and other groups that have traditionally been under-represented in commercial real estate funds.
WMRE spoke with Ben Harris, the company’s senior vice president of investor relations, about the company’s investment strategy for UALF II, its goals and how it conducts its relationships with its equity investors.
This Q&A has been edited for length, style and clarity.
WMRE: Historically, who or what type of investors have been the biggest source of equity for CRG?
Ben Harris: Historically, our investment opportunities have been exclusively available to institutional investors, such as pension plans and endowments.
WMRE: How does CRG find and retain investors? How important are wealth management advisors to efforts to raise equity from high-net-worth individuals and family offices, as this fund is doing?
Ben Harris: Now that we are partnering with wealth managers, family offices and high-net-worth-individuals, we typically meet new investors through our personal networks and referrals. To us, there is no greater compliment than a current investor referring a new one. Wealth managers have been a very important source of new equity for us in our latest flagship offering, U.S. Logistics Fund II. We have partnered with more than a dozen wealth management groups in the last couple of months, and we hope to work with more soon. We have found that wealth managers and their clients haven’t been able to access institutional-quality industrial development opportunities, and we are also interested in diversifying and expanding our investor base. The relationship has been a win-win.
WMRE: Are there any special issues in working with family offices and high-net-worth investors?
Ben Harris: Working with a group of family offices and high-net-worth-individuals instead of just one institutional investor can result in more administrative work for fund management teams. Fortunately, this is not an issue for CRG because we are staffed appropriately, and our newest investors have been a pleasure to work with.
WMRE: How does CRG market itself to potential investors? Does the company tend to have repeat investors?
Ben Harris: Our currently available offering, U.S. Logistics Fund II, has been exclusively raised by word of mouth. More than $100 million was committed in the first 100 days following launch, purely from first- and second-degree connections.
WMRE: For this specific fund, CRG is targeting 10 percent of fund investors to be women and people from diverse backgrounds. How does CRG plan to target those types of investors?
Ben Harris: Our company already has fantastic relationships with diverse business leaders because of our years of focusing on diversity initiatives, so we have been reaching out to everyone we know in order to achieve our goal.
WMRE: How does CRG stay in touch with its equity investors? What tools are used for investor reporting and communications?
Ben Harris: Every investor has a personal account on our online investor portal where they can track their investment performance and access their personal documents. We also distribute a comprehensive investment update every quarter. Of course, if investors ever have a question, they are encouraged to contact us as well.
WMRE: What is the average allocation for your equity investors?
Ben Harris: The average allocation for an investor in U.S. Logistics Fund II is more than $1 million.
WMRE: Is CRG using debt for this fund? If so, how much?
Ben Harris: Yes, each project will have its own construction financing. When building a new industrial project, we typically use conservative, non-recourse leverage of 55-60 percent loan-to-cost.
WMRE: Is the company putting its own equity into the fund? If so, what share of the total will it make up?
Ben Harris: Yes, we believe in aligning our interests with our investors’ interests. The principals of CRG are making a material co-investment of up to $10 million in the fund.
WMRE: How are CRG's investment vehicles typically structured—are they open or closed-end funds? Do the funds have specific timeframes?
Ben Harris: U.S. Logistics Fund II is a closed-end fund that will be diversified across more than a dozen projects in major logistics markets across the country. Investor commitments will be drawn down and invested over approximately a two-year period, and the total fund life is projected to be four to six years.
WMRE: What is the exit strategy for this fund and for individual investors?
Ben Harris: The strategy for U.S. Logistics Fund II is to build state-of-the-art distribution facilities for leading e-commerce tenants. Once a project is leased, then we typically position the project for sale. The fund ends when all projects are sold.
WMRE: How competitive is the landscape with other industrial property funds being raised right now, both in terms of getting investor commitments and in sourcing acquisition/development opportunities?
Ben Harris: Raising funds and finding new, exciting deals is never easy. However, we do have competitive advantages that allow us to be successful. Having a strong track record and a robust deal pipeline has allowed us to attract a significant amount of capital in a fairly short period of time. As for finding new development opportunities, we have seasoned professionals at seven regional offices across the country focused solely on unearthing differentiated investments. We see a ton of on- and off-market deals in our target markets, which allow us to be ultra-selective with our investments.
WMRE: What type of returns is CRG targeting or promising investors for this fund?
Ben Harris: CRG is targeting an 18 percent plus net IRR for U.S. Logistics Fund II.
WMRE: Is there anything else you want to add about this new fund?
Ben Harris: We are excited to be able to share our institutional industrial real estate fund with individual investors, especially in such a fast-growing segment of the market. According to CBRE, more industrial real estate space has been leased than built for 44 straight quarters (11 years!), and CBRE doesn’t expect this trend to slow down any time soon because of continued growth in e-commerce.
