A Deeper Look at Carlyle's Real Estate Footprint

WASHINGTON, DC-Global alternative asset manager Carlyle Group is carving out ground in the fund-of-funds business with its just-announced acquisition of Metropolitan Real Estate Equity Management LLC. Financial terms of the transaction were not disclosed, but as GlobeSt.com reported on Wednesday, the locally based Carlyle intends to fund the purchase through its balance sheet. Subject to Metropolitan's investors' consent, the deal is scheduled to close in November.

Metropolitan will be folded into Carlyle Group's Solutions platform, which also includes AlpInvest, the $48 billion private equity fund of funds operation.

"Metropolitan is a proven multi-manager in global real estate," Jacques Chappuis, a Carlyle managing director and head of the Solutions group, says. "This adds an important capability to our growing Solutions business, strengthens our intellectual capital in global real estate, and immediately contributes to our corporate bottom line."

Metropolitan's primary strategy centers on value add/opportunistic real estate investments—specifically, on more than 1,000 highly focused, specialist real estate managers across the globe. This approach is joining Carlyle's widely diverse portfolio in this asset class and one about which the co-founders are bullish.

In the company's earning calls last month, co-founder Bill Conway told listeners that over the course of all the years it has been in business, "we've invested about $30 billion in real assets in our funds, and if you looked at what we realized or what we say it's worth today, it's about $45 billion. So, we've made about $15 billion in the real asset business for our investors over that period of time." That includes real estate and it includes energy and infrastructure, Conway added.

Carlyle, of course, is a global player and its real estate investment activities are global as well. Conway said the market in the U.S. is going well "where I think we're on about our seventh United States real estate fund, really consistent track record and a very good business."

Europe, though, the real estate market has struggled because of the continent's high jobless rate. "In Asia real estate, we continue to build that business and I am quite satisfied with that," Conway said. "I would say, of course we wish it were bigger, and making more money for us, but we're very pleased with the businesses we have and hopefully they'll get bigger and better."

Feeding this growth will be, hopefully, investors renewed appetite for alternative assets – a class that real estate, in many portfolios, is included.

Co-CEO David Rubenstein told listeners in that same earnings call that the company is beginning to sense a shift among investors for allocations to alternatives, "especially for those firms which have an established record of performance."

He cited Prequent figures, noting that 27 buyout funds raised $43.1 billion worldwide in the second quarter of 2013, an increase of almost 85% from the first quarter of the year and the most active fundraising quarter since the fourth quarter of 2008.

"Carlyle has also seen this trend with respect to our own funds," Rubenstein said. "More specifically, we have seen a substantial number of fund investors willing to commit large sums to funds in blocks between $100 million and $500 million."