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BKM holds $160m first close for industrial fund – Exclusive

The Newport Beach, California-based firm’s second fund has already surpassed its predecessor’s equity.

BKM Capital Partners is more than halfway to its $300 million target for its latest fund, PERE has learned.

The Newport Beach, California-based private equity real estate firm has corralled $160 million for BKM Industrial Fund II, along with $25 million in co-investments. The firm has another $100 million of capital soft-circled. BKM, which launched Fund II in February 2017, is targeting a final close by the end of summer.

The firm’s institutional investor base comprises a US college endowment, a US state pension fund, a US insurance company, a US fund of funds, a German trust and a Canadian family office. The Montana Board of Investments allocated $30 million to the fund, according to meeting materials.

The fund series is focused on distressed and undervalued light multitenant industrial real estate in the western US. On behalf of Fund II, BKM has purchased four assets so far in Las Vegas, San Diego, Denver and Sacramento, with two more properties in escrow.

BKM closed its debut fund in February 2016 on $105 million, with $30 million in sidecar capital. While the firm originally targeted $200 million for the vehicle, it decided to close the fund before hitting its target to begin investing, cofounder Brian Malliet told PERE at the time.

Malliet said last year that BKM increased its target from that of the first fund because of a long pipeline of investment opportunities and increased investor interest, particularly from US public pension plans and other institutional investors that are often restricted from investing in a firm’s debut fund.

The firm is targeting a 15 percent net internal rate of return for the fund series. BKM purchased 18 assets with capital from Fund I, which is fully invested, and has sold three of those properties, achieving gross IRRs above 37 percent. Fund I is on track for a 19 percent net IRR.

“We have an extremely strong pipeline of value-add investment opportunities, and this $160 million closing allows us to immediately begin deploying capital,” Malliet said. “By being strategic in our specific focus and operator execution platform, we will capitalize on the growing demand for properties that serve as ‘last mile’ delivery hubs for retailers and industrial users. This will maximize returns to our investors while we continue to fundraise over the course of the year.”

The firm does not have a hard-cap for Fund II, nor is it using a placement agent.

BKM, founded by Malliet and entrepreneur Nima Taghavi in 2013, has also collected capital outside of its fund series through the California Public Employees’ Retirement System’s emerging manager program. In a joint venture with the Canyon Catalyst Fund, a platform managed by Los Angeles-based Canyon Partners, BKM is buying industrial properties in urban California markets. CCF allocates between $50 million and $150 million per emerging real estate manager, but the exact amount of the commitment to BKM was not disclosed.

BKM manages 27 properties totaling more than 4.9 million square feet.

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