May 12, 2023
Investor Letter

As we are in the midst of capital markets uncertainty, we wanted to share some of our current insights and opinions. Before the Silicon Valley Bank failure, the real estate market for debt and equity was still functioning albeit at lower volume levels. Only weeks later, many conversations with lenders, equity relationships, brokers, and investors suggest there has been significant degradation of capital flows, at least in part due to the Fed’s resolute march toward higher rates coupled with the resolve to keep rates higher for longer than many market participants expected, despite another large bank failure at First Republic.

What this means for current and future STAR Fund investors:

  • First, rest assured that our cash and deposits that we control are FDIC-insured or U.S. Treasury invested programs with institutions that have not been under the pressure seen at SVB and First Republic. We have reviewed the banks we do business with both at the asset level and for our corporate accounts, and we are confident that no further changes need to be made at this time.
  • We remain cautiously optimistic on the growth of the domestic economy, especially in the manufacturing and R&D sectors coming from intel off of our Logistics platform.
  • The STAR Fund has no legacy asset issues. Both seed assets in the current portfolio were purchased at prices reflective of the increased interest rates in December 2022. Further, we swapped our base index rate at 4.11% for 5 years on both properties, mitigating interest rate exposure for that duration.
  • Given market conditions, we believe that current pricing on acquisition opportunities should result in higher than targeted returns and potentially increased yields, provided there are willing sellers. Cap rates on certain assets are now closer to when we started the business 20 years ago. Pricing when you buy an asset is permanent, but the financing is temporary. We like today’s pricing and see an opportunity to purchase quality assets for the longer term.
  • We do not expect this pricing to be a systemic shift, but rather a 12 to 18-month opportunity to buy quality mission critical assets at attractive longer term pricing levels.
  • We are not changing our target yields or returns nor deviating from our max leverage targets, as we believe these remain appropriate for the long-term goals of the fund. These targets were selected with longer-term trends in mind. We continue to price deals on a relative risk basis, with current debt assumptions and lower leverage constraints.
  • We continue to employ hedging strategies where appropriate across our portfolio and expect to do the same on future assets. The SOFR forward curve changes have been volatile and have presented what we view as unique opportunities to take some risk off the table. We are constantly evaluating the use of swaps, caps, and longer-term fixed rate financing. For example, on a FD Stonewater investment not held by the STAR Fund, we recently entered into a forward swap arrangement that will become effective upon the expiration of an existing swap years down the road, effectively insulating the asset from interest rate risk for an extended period.
  • Select urban markets are certainly feeling pain. We are not taking a broad brush view on leasing strategies. Every asset has its own unique opportunities and challenges. Our focus has been on secondary markets where we continue to see leasing activity, an FD Stonewater asset even recently won the CoStar award for lease of the year in Richmond (click here to read more). Over the past few weeks our leasing pipeline activity has seen a noticeable uptick in inquiries.


While optimistic, we also remain attuned to the rapidly evolving market conditions and potential implications for the STAR Fund during these uncertain and challenging times.  Please let us know if you have any questions.

As a reminder, the STAR Fund is now approved on Schwab and Entrust platforms to be a custodian for investing through your standard and IRA accounts. If you are interested in investing in the Fund, please click here for more information.

Please also feel free to listen to some of the podcasts on which our principals have recently been featured (listen here) and follow us on LinkedIn.


Please note that the foregoing is not an offer to sell or a solicitation of an offer to purchase any securities of FD Stonewater STAR Evergreen Fund, L.P. (the “Fund”) or any affiliate, and any such offers will only be made pursuant to a private placement memorandum or similar disclosure document (“Private Placement Memorandum”) and other definitive documentation relating to any such offering. The foregoing information excludes material information that is detailed in the Private Placement Memorandum, including, but not limited to, risk factors. Prior performance is not indicative of future results. An investment in the Fund is speculative and involves a high degree of risk. Only investors who can withstand the loss of all or a substantial part of their investment should consider investing in the Fund.  Additionally, an opportunity to invest in the Fund is only available to (a) “accredited investors” as defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), or (b) non-U.S. persons that meet the requirements set forth in Regulation S promulgated under the Securities Act.