BKM Capital Partners has held a final close on its second value-add multi-tenant industrial fund, BKM Industrial Value Fund II, PERE has learned.
The Newport Beach, California-based real estate firm exceeded its $300 million fundraising target, raising $289.4 million for Fund II, $54.1 million of invested Fund II co-investment capital and $38 million in non-discretionary co-investment capital for the strategy.
BKM received commitments from 17 institutional investors, which included 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 Investment committed $30 million, according to PERE data.
The expansion of the limited partner base from Fund I to Fund II was a result of the two institutional investors in the predecessor fund giving the firm a strong recommendation to its peers, according to co-founder and executive chairman Nima Taghavi. The two institutional investors from Fund I did not re-up in Fund II themselves, however, because of a shift in investment strategy, he added. BKM also deployed capital following the $160 million first close that PERE reported in May 2018, which provided some asset transparency and encouraged more investors to commit, Taghavi said.
Fund II is three times the size of its predecessor, which was launched in March 2015 and closed on $105 million in February 2016, according to PERE data.
Fund I, which has not yet been fully realized, is on track to surpass its 15 percent net internal rate of return target, with the firm anticipating an 18.3 percent net IRR for the vehicle.
Fund II, which is currently 46-48 percent invested, is also targeting a 15 percent net IRR. Like Fund I, it will follow a value-add multi-tenant industrial investment strategy focused on assets in the Western US and potentially the Pacific Northwest.
BKM offers 2,000-4,000 square feet of built-out industrial space to each of its tenants and houses 50-70 tenants in an industrial facility, many of which are small American businesses. None of the tenants will represent more than 15-16 percent of the Fund II tenant base, Taghavi said.
The firm acquires “tired” or neglected industrial properties and adds value by making improvements to the assets. Taghavi believes the firm’s vertically-integrated model is an advantage because these properties are very management intensive. Unlike big box industrial properties, tenant improvements for the units in BKM’s multi-tenant facilities are done upfront when the property is acquired because tenants demand fast, “move-in” ready space, he explained. BKM has local teams that handle property management and leasing in order to quickly move tenants in and out of the facilities.
Founded in 2013 by Taghavi and chief executive Brian Malliet, BKM manages more than $1 billion in assets and has a team of almost 90 people.
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