Sep 27, 2021

Even Without In-Person Meetings, Crow Holdings Raises Its Biggest Fund Yet

CEO Says the Firm Relied Heavily on Zoom Calls With Foreign Investors Unable To Travel

Crow Holdings Capital has its corporate headquarters within the Old Parkland campus in Dallas. (Renelibrary/Wikimedia Commons)
Crow Holdings Capital has its corporate headquarters within the Old Parkland campus in Dallas. (Renelibrary/Wikimedia Commons)

By Candace Carlisle
CoStar News

September 26, 2021 | 7:54 P.M.

Crow Holdings created its largest fund ever by raising more than $2 billion for U.S. real estate purchases, all without meeting any investors face to face.

Crow Holdings Capital CEO Bob McClain said that scenario would have been unheard of prior to the pandemic, but with travel banned to visit with foreign investors at the start of the pandemic last year, it became a necessity.

"This was a very different experience, with some days being spent in four to six one-hour consecutive Zoom calls," McClain said in an exclusive interview. "It's more challenging to talk to a camera, but video helped a lot. It certainly took a lot of effort."

The $2.3 billion fund, which is Crow Holdings' ninth, was oversubscribed, shooting past its original hard cap of $2 billion, with existing and new investors ranging from global banks, insurance companies, pension plans, family offices and high net worth individuals looking to place capital.

The pandemic has drastically changed how Crow Holdings raises capital. In its first eight funds prior to the pandemic, McClain said the firm's executives spent about a third of the year on airplanes or in meetings building relationships with investors.

Bob McClain is the CEO of Crow Holdings Capital, the investment management arm of Crow Holdings.

The fund's popularity demonstrated the conviction of investors wanting to bank on the future of U.S. industrial real estate and apartment properties, McClain said.

The fund, Crow Holdings Realty Partners IX, managed by Dallas-based Crow Holdings' investment management arm, Crow Holdings Capital, has co-investments of $265 million in equity capital and total investable equity of about $2.6 billion.

Still, there are limits to remote fundraising, McClain said. While Zoom calls worked during the pandemic, Crow Holdings Capital doesn't plan to keep doing virtual meetings when it has the chance to do them face to face. But with many overseas investors still not taking in-person meetings, the firm expects it may have to forgo the much-preferred, in-the-same-room sessions for a while longer.

Record Funds Raised

The fund is the most Crow Holdings, a national real estate investment and development firm with $21 billion of assets under management, has ever raised in its 73-year history. The company's predecessor fund raised $1.3 billion.

About 80% of the fund's capital has already been identified for commitments in the pipeline ranging from completed transactions to deals in the making in the Sun Belt and Mountain regions of the United States. The remaining capital would probably follow the existing deployment into industrial, apartment and other real estate such as mobile homes, self-storage properties, student housing, and convenience and gas stores.

The fund's allocations in property types fall in line with broader trends during the pandemic, with investors showing a preference for backing industrial real estate and apartment properties.

Coe Juracek, managing director of Crow Holdings Capital's investor coverage group, said more than 60% of the fund is tied to housing, including apartments and mobile homes, followed closely by industrial real estate development, with only a small percentage of the fund being invested in specialty retail properties, reflecting the shift of consumer preferences to e-commerce.

"We believe we are redefining what to expect from manufactured housing," Juracek said in an interview. "We were able to see a market hole and there was an opportunity in affordable housing if you knew how to solve it," he said, adding that it involves "very nice, affordable housing."

When Crow Holdings raised its second fund more than a decade ago, the scenario was much different. About 44% of that fund was earmarked for grocery-anchored retail centers, with industrial real estate only garnering about 5% of the fund's equity, McClain said.

Fast forward to the company's ninth fund, and the allocation to industrial real estate has changed dramatically. It is more efficient to develop a modern industrial facility than buy an existing property in the market today, McClain said.

"No asset class has stronger tenant demand than industrial, as evidenced by the incredibly low vacancy rates and, on the other side of the equation, buyer demand," McClain said. "Existing buildings are trading above replacement costs."

In addition to developing apartments from the ground up, Crow Holdings is also finding value in buying 10- to 20-year-old properties at below replacement costs and investing $10,000 to $20,000 per unit on upgrades, such as appliances, finishes, flooring, lighting and amenities, to let them charge higher rents, McClain said. Adding a dog park or dog wash area also seems to resonate with residents, he added.

Crow Holdings Capital has a history of investing in the top 20 U.S. markets, with a disproportionately low allocation of funds in the top five markets in cities such as New York City, Boston and Washington, D.C. Instead it focuses on markets such as Austin and the Dallas-Forth region in Texas; Denver; Charlotte, Raleigh and Durham in North Carolina; and Salt Lake City.

The investments in these markets come as Crow Holdings adds partnerships to its platform. Last month, Crow Holdings CEO Michael Levy spoke to CoStar News about the firm's new $1 billion venture with a sovereign wealth fund, a partnership that may not be the firm's last.

Levy said the successful close of the fund demonstrates that investors appreciate the firm's track record and real estate expertise, especially as it relates to the early recognition of the significant tailwinds of shifting consumer preferences to shopping online.

This overview is designed to introduce Crow Holdings and its various operating companies. Crow Holdings Capital is a U.S. SEC registered investment adviser and is the manager to the Crow Holdings Capital Funds. Crow Holdings Partners is a division within Crow Holdings Capital. Crow Holdings Capital, Trammell Crow Residential, Crow Holdings Industrial and Crow Holdings Office are operated separately and independently from one another with separate senior leadership and investment committees. SEC registration does not imply a certain level of skill or training.