Crow Holdings Bags Record $3.7B for U.S. Value-Add Fund

Crow Holdings, a Dallas-based investment firm, has raised nearly $3.7 billion for its latest property investment fund, marking its largest capital raise.

The round: The Crow Holdings Realty Partners X LP fund attracted investors, including private entities, banks, sovereign wealth funds, insurance companies, and pension plans. It primarily targets value-add real estate assets, focusing on multifamily and industrial properties. Additionally, the fund will consider investments in manufactured homes, retail, self-storage, and student housing. Over 25% of the fund has already been allocated to 14 different investments.

Investor confidence: A notable highlight of this fund is that more than 70% of its commitments came from previous investors of Crow Holdings, indicating strong investor confidence. The fund’s size, almost 35% larger than its predecessor, showcases the growing trust and partnership between Crow Holdings and its investors. The fund could also increase to $3.7 billion, as it secured an additional $600 million in equity capital from co-investors.

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Big picture: Bob McClain, CEO of Crow Holdings Capital, has expressed strong confidence in the firm’s investment strategy, emphasizing a focus on real estate assets that align with long-term growth trends, particularly in the industrial and multifamily sectors across high-growth U.S. markets. This positive momentum comes amid Trinity Hunt Partners’ $700 million fund and MB2 Dental’s $2.3 billion deal with KKR, showcasing an optimistic investment atmosphere with anticipation of Federal Reserve rate cuts later this year.

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Fed’s Cautious Approach on Interest Rates

In a recent Federal Reserve meeting, officials showed restraint in lowering interest rates, emphasizing the need for more evidence of sustained inflation reduction before making any cuts.

Maintaining the status quo: During the meeting, the Federal Open Market Committee chose not to alter the key overnight borrowing rate. This decision was underscored by a change in their post-meeting statement, now requiring “greater confidence” in inflation decline before considering rate cuts. The minutes revealed a balanced view: optimism about the effectiveness of past policies in reducing inflation, which had peaked at a 40-year high, alongside a consensus that rate hikes were likely ending.

Awaiting further data: The Federal Reserve expressed the necessity of more data to confirm a sustainable trend towards their 2% inflation target. Despite observing significant disinflation, the Fed noted some progress might be due to temporary factors. Officials emphasized the risks involved in hastening rate reductions, preferring a careful evaluation of incoming data.

Economic uncertainty: There’s ongoing deliberation over the duration needed for restrictive monetary policies. The economy’s growth at a 2.5% annual pace in 2023 and the robust labor market, with 353,000 new jobs in January, suggest resilience despite consecutive interest rate hikes. However, recent inflation data still surpasses the Fed’s target, warranting a cautious stance on policy relaxation.

Balance sheet strategy: The meeting also touched on the Federal Reserve’s bond holdings. Since June 2022, over $1.3 trillion in Treasurys and mortgage-backed securities were not reinvested. The Fed plans a detailed conversation on this “quantitative tightening” in March, focusing on the necessary reserve levels for banks.

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Looking ahead: Fed officials are contemplating the extent of policy relaxation needed to foster growth while controlling inflation. Current policies are considered restrictive, and the challenge lies in determining the right balance. Recent data showing a higher-than-expected rise in consumer and producer prices adds complexity to these decisions.

According to Moody’s, the average rent-to-income ratio across the U.S. has increased yearly since 2019. While 36.6% of renters paid 35% or more of their income on rent back in 2019, nearly 3% more (39.6%) were in the same boat in 2022.

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