SAN FRANCISCO-Locally based real estate investor D.R. Stephens has formed a partnership with Oak Brook, IL-based Inland American Real Estate Trust that will be acquiring value-add industrial and R&D properties throughout the Bay Area over the next several years. DR Stephens Institutional Fund LLC will be capitalized at $100 million–$90 million from Inland American and $10 million from D.R. Stephens, which will manage the partnership. With debt, it will be able to spend $300 million acquiring and repositioning properties.

Don Stephens, who runs D.R. Stephens with his son Lane, has been focusing solely on the type of product the fund plans to acquire for the past eight years. Don Stephens tells the fund will invest the equity over a two- to three-year period and will hold the assets for between five and seven years. After management fees, he expects the IRR after management fees will range from the mid- to high teens.

The Stephens’ like this particular arrangement in part because the funds are in a blind pool, which means they will be able to act more quickly. “We have done a lot of investing with wealthy individuals; the problem with that is we’d find a property and then spend three months raising money while other good deals came and went,” Don Stephens says. The company also has invested with institutional partners such as Buchanan Street Partners and Merrill Lynch, but never in a blind pool format.

Inland American Real Estate Trust, Inc. is a real estate investment trust with a portfolio that includes wholly owned and joint venture interests in 106 office, retail, industrial and multifamily properties. Per that partnership agreement with D.R. Stephens, Inland American will be entitled to a preferred return on its invested capital equal to 8.5% per annum, on a cumulative basis, compounding quarterly prior to any distributions being paid to D.R. Stephens.

Once D.R. Stephens has received a similar 8.5% return on its invested capital, distributions will generally be made first to each member in an amount that would provide, at a minimum, an 8.5% IRR on each member’s capital contribution. Thereafter, depending on the fund’s performance, additional distributions would be made to both parties.

D.R. Stephens will be entitled to an annual asset management fee equal to 1.25% on any unreturned capital contributions; a property management fee equal to 4.5% of gross collected revenues ; and an acquisition fee equal to 0.5% of the purchase price of any assets acquired by the Fund.

The fund is set to be liquidated no later than April 2014 but may be extended by up to two years. All decisions regarding the fund’s operations will be made by an executive committee comprised of three members designated by Stephens and two members designated by Inland American. On major decisions, such as financing and individual equity investments in excess of $8 million, all five members must be in agreement.

The REIT was represented in the partnership negotiations by Inland Institutional Capital Partners Corp., an arm of the Inland Group of Companies that specializes in raising private equity and identifying large scale investment opportunities. Steven Fenster and Michael Campbell of the Carlton Group advised D.R. Stephens.

Finalized last week, the fund already has made its first investment, paying $22.9 million for two industrial properties totaling 212,057 sf in Fremont, CA. No additional detail on the properties was immediately available.

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