BKM Capital Partners' BKM Industrial Value Fund II is already nearing its $300 million cap months early. The firm has held the first closing for the fund with $160 million in commitments and $100 million in soft-circled commitments from European and US institutional investors. Like BKM Industrial Value Fund I, the second fund is strategically focused on multi-tenant value-add industrial opportunities in the Western US. The strategy was successfully executed in the earlier fund, which has already produced 37% to 40% IRR for its first three realized assets. Fund II will hold its final close at the end of summer 2018. Until then, we sat down with Barb Rea, director of investor relations and operations at BKM Capital Partners, to talk about the interest in the fund, the possibility over oversubscribing and why they continue to be strong believers in the value-add industrial space.
GlobeSt.com: You are focusing on value-add multi-tenant industrial deals. Why do you continue to be a believer in this asset class, what is your strategy in this space?
Barb Rea: There are a few things happening that makes the asset class appealing. We are continuing to seek deals and find deals that are well below replacement costs. That is because there is a limited supply. This is an expensive product type to build, and it is usually the last product type that is built in the cycle. There is also more demand for it right now as well, and there is a lot of multi-tenant space that is getting knocked down to build office. There is an example of that in Northern California where Tesla has removed a lot of multi-tenant space from the market to build their headquarter facility. That makes our multi-tenant properties there even more appealing because there are really no other options. Supply is a big component. The Amazon effect is also important. There are a lot of smaller manufacturers that are trying to get their product to market quicker, and those are the types of tenants that are typically in our business parks. There is a high demand to get products to people quicker.
GlobeSt.com: What geographic markets are you focused in to find those opportunities below replacement cost?
Rea: We are focused on the Western US. We are looking at some primary markets like San Diego, the Bay area, Seattle as well as secondary markets like Phoenix, Las Vegas and Sacramento. Those are the areas where we continue to see deals in and where we are really focused.
GlobeSt.com: Tell me about your fundraising so far and which investors have shown interest.
Rea: We are really targeting institutional investors, pension funds, foundations and endowments. That is who we are seeking out, but we have had additional interest from family office groups. They aren't a main focus for our strategy in terms of us going out to market to them, but we have several interested and we have a few that have already closed in our fund. A lot of family offices are very institutional in nature, and I don't think it is unusual that they would be interested. They have money to put to work, and this product type has gotten a lot of buzz in the last few months. Family offices are looking to diversify their portfolio, and industrial has gotten a lot of buzz because of the Amazon-effect, and they are interested and looking for operators in this product type.
GlobeSt.com: Are you on track to hit your goal of $300 million in commitments by the end of the summer?
Rea: We are. We have several groups soft circled, and we have about $100 million in equity commitments soft-circled. They include both European investors—and we have a really great parallel fund vehicle for our foreign investors that are not considered qualified pension funds—and we have US institutions, including family offices. We are on target by end of summer.
GlobeSt.com: Is there an opportunity to oversubscribe the fund?
Rea: We have a hard cap of $300 million in the fund but do accommodate fund investors to have co-investment opportunities for assets within the fund. We have several groups interested in that, and I anticipate $150 million in addition to the $300 million that will ride outside of the fund as co-investment.
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Kelsi Maree Borland
