Oak Street on track to raise its first mega-fund

Oak Street is on track to raise its first mega-fund with its latest real estate offering, Oak Street Real Estate Capital Fund VI, PERE has learned.

The Chicago-based private equity real estate firm declined to comment, but PERE understands Oak Street is holding a rolling first close of more than $2 billion for the fund over the next two weeks. The manager is expected to hold a final close at its hard-cap of $5 billion by Q1 2023.

Fund VI would become the net lease specialist’s first mega-fund, meaning a vehicle that has raised a total of $5 billion or greater. Oak Street previously raised a total of $2.5 billion for the predecessor fund in the series, Oak Street Real Estate Capital Fund V, in March 2020, according to PERE data. Oak Street declined to comment.

At its final close, Fund VI is expected to be the largest net lease fund ever raised, topping the current record holder, which was also raised by Oak Street: the open-ended Oak Street Real Estate Capital Net Lease Property Fund, which has gathered $3.5 billion to date. As one of the fastest growing firms in private real estate, Oak Street has also raised the lion’s share of capital in dedicated net lease funds. Of the $16.7 billion gathered across 16 closed or open-end vehicles, the firm was responsible for $12.9 billion, or 77 percent, according to PERE data.

Similar to its predecessor funds in the series, Fund VI will be focused on investments in investment grade triple net lease real estate, where tenants with investment grade credit status will pay all operating expenses, taxes and capital expenditures associated with the property. Oak Street will exclusively purchase “mission-critical, free-standing office, industrial, and retail assets with long-term leases” with a minimum remaining term of 11 years and that can be acquired at a going-in cap rate of 7 percent of higher, according to September board meeting documents from the Pennsylvania State Employees Retirement System.

Oak Street is targeting a net IRR of 12-14 percent and a minimum annual net cash yield of 8 percent, utilizing 60 percent leverage. The firm has generated a 25 percent net IRR across fully realized closed-end funds as of March 31, the documents showed.

The vast majority of the capital raised in Fund VI’s first close is understood to come from institutional investors. Along with PASERS, which committed $75 million to the fund, other limited partners included Oregon State Treasury, which earmarked $200 million, according to PERE data. However, up to $2 billion of the fund’s $5 billion total equity haul is ultimately expected to come from high-net-worth or retail investors.

Also in Q1 2023, Oak Street and Singaporean sovereign wealth fund GIC are slated to close on the $14 billion take-private acquisition of net-lease real estate investment trust STORE Capital, a transaction originally announced in September. Oak Street will be making its investment with capital from Fund V and a private REIT. Fund VI is understood to have not yet been launched when the deal was negotiated.

Oak Street is a division of New York-based alternative asset manager Blue Owl, which made its entry into the real estate sector after acquiring the net lease specialist in 2021.