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HOUSTON-Lionstone Group and CalSTRS have set a $100-million equity fund into motion with the acquisition of a class A office building in Omaha. As the portfolio builds, CalSTRS can boost its contribution to $500 million with Lionstone kicking in 1% of the total tapped equity.

The JV is using a 50% leverage formula, setting up an initial $200 million of buying power for Lionstone Cash Flow Office Two. The fund, which could be inflated to $1 billion, targets high-occupancy office buildings of any age in all US markets.

The fund is a follow-up to Lionstone’s $75-million Cash Flow Office One, a joint venture with the Oregon Public Employees Retirement Fund, which is fully vested, also through office buildings. “We wanted to pull another fund together just as we were finishing out the Oregon fund,” says Dan Dubrowski, principal and founder of Houston-based Lionstone Group.

Dubrowski says the CalSTRS partnership was finalized in the second quarter, but the Omaha purchase is the official firing pin. The JV’s first deed is the 128,000-sf One Pacific Place, a fully leased, eight-story office building at 1125 S. 103rd St. Morgan Stanley’s Glenborough Realty Trust was marketing the asset for $25 million to $30 million.

“This asset is typical of the size and value we’re looking at, and with six or seven of these assets to fill the fund, we’re looking at a 12- to 18-month investment period for this one,” Dubrowski tells GlobeSt.com. Leasing and property management will be outsourced to local companies.

Acquisition criteria include high occupancy, a strong location within its submarket and credit tenants. Dubrowski says they are looking at buildings in Chicago, South Florida and Southern California, but nothing else is under contract at this time.

Dubrowski says “where” an asset is located in the US isn’t as important as its strength in the submarket. “Sometimes you find great buildings in secondary markets or you find buildings that other investors might be nervous about in great markets because of potential roll,” he points out. “We understand locations and that’s why we’re here. If you have a location right, even if a tenant moves out, it can be re-leased quickly.”

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