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Carlyle Raises $540M For European Fund After Long, Hard Road To Recovery

Private equity giant Carlyle has raised €478M ($541M) for a new European real estate fund, its first on the continent since before the financial crisis.

Carlyle co-founder David Rubenstein

Results for the Washington, D.C.-based firm founded by David Rubenstein, Bill Conway and Daniel D'Aniello show that it raised €269M for the Carlyle Europe Realty Fund during the third quarter, taking it close to its equity target of €500M.

Completing an equity raising for a European real estate fund will be a big moment for Carlyle. It is a giant in the worlds of corporate buyouts and U.S. real estate. In September it raised its largest-ever U.S. property fund, the $5.5B Carlyle Realty Partners VIII.

But European real estate has been a problem for the firm with global ambitions, and it lags well behind rivals like Blackstone, Brookfield, Lone Star, Morgan Stanley and Goldman Sachs when it comes to raising capital to be deployed in European property.

That is because of the ill-fated investments it made in the run up to the last boom. In 2005 it raised €762M ($862M) for its second European real estate fund, and in 2007 it raised €2.2B for its third.

As of the end of September the second fund had a negative internal rate of return and the third fund had an IRR of just 5%. While some investments Carlyle made were sold at a profit in the past couple of years, like the student accommodation portfolio Pure Student and several trophy London office buildings, many of the investments it made were highly leveraged at the wrong point in the cycle. For some time it looked like both of these funds might not give any equity at all back to investors.

Carlyle brought in a new European management team, hiring three well-known Blackstone directors in 2015 and 2016 — Peter Stoll, who runs the business, Marc-Antoine Bouyer and Anssi Halonen. While managing the legacy portfolio, they also started targeting new investments.

Carlyle put its own money at risk to rebuild the European business. It did not have any fund equity so it used its own balance sheet to buy assets and rebuild its track record, putting its money up alone or alongside joint venture partners.

Carlyle's coworking building in Borough, U.K.

It focused on three areas: European logistics, where it has invested more than €200M ($226M) in the past two years, Berlin residential and London coworking. In the latter sector it bought a brand called Uncommon and bought assets for its occupation, and committed to spending more than £150M ($191M) in the sector.

The strategy seems to have worked, if the recent fundraising for Carlyle Europe Realty is anything to go by.

It has not been released whether these assets will be used to seed the fund. But it is already buying assets directly with the equity raised. It paid €30M for a 207-room student accommodation development in Dublin last month.

And Bisnow can reveal its next acquisition. According to an EU competition commission filing, Carlyle Europe Realty is buying the Penha Longa Resort in Portugal, a luxury hotel with 194 rooms, a golf course and a spa, part of which is built into a 14th century monastery. It is currently run by Ritz-Carlton.

Carlyle declined to comment.