Lone Star Raising $6 Billion Distressed Fund

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Lone Star Funds is looking to raise $6 billion for a fund to buy distressed commercial-property debt and equity, hoping to find higher returns for real estate investors. 

The biggest buyer of delinquent mortgages in the U.S., Dallas-based Lone Star will begin collecting pledges as early as this month, according to a Bloomberg report.

With 10-year treasury notes offering around a 2.2 percent yield, investors are looking for higher returns in real estate. Lone Star is part of a group of firms, including Carlyle Group LP, TPG Capital and KKR & Co., that are raising money for real estate focused funds. 

Caryle is raising $4 billion for a real estate fund, its seventh and largest focused on property. Carlyle recently sold the office and retail building at 650 Madison Avenue for $1.3 billion, setting the record for the biggest sale of a single building in the U.S. 

"We're suddenly seeing a lot of the large mega-funds back in the market," Steve Coyle, chief investment officer for global private real estate opportunity strategies at Cohen & Steers Inc. in New York told Bloomberg. "It's a good point in the cycle. People still see distress, and opportunistic real estate is a place where a lot of folks think they can make money."

Last month Lone Star finished raising $5.1 billion for Lone Star Fund VIII which is focused on residential real estate, according to Bloomberg.

"Fundraising is still quite difficult out there, but Lone Star has a longstanding track record of success in raising large amounts of capital," Mr. Coyle said. "I would expect them to be one of the winners."