Lone Star Funds, the private-equity firm led by Chairman John Grayken, bought 23 buildings from State Farm Mutual Automobile Insurance Co. and will lease them back to the largest U.S. property/casualty insurer.

The real estate is in 18 locations, according to an e-mail yesterday from Rachael Risinger, a spokeswoman for Bloomington, Illinois-based State Farm. She said the deal was completed Nov. 8 and declined to disclose terms. A spokesman for Dallas-based Lone Star declined to comment on the transaction.

The deal will provide cash for policyholder-owned State Farm without requiring the company to issue debt. The insurer is working to protect its share of the $178 billion auto market as competitors including Berkshire Hathaway Inc.’s Geico unit and Progressive Corp. add customers.

“Leasing rather than owning property provides State Farm the flexibility to make adjustments in our operations to better serve our customers,” Risinger said. The insurer has “options to renew these leases if we choose to do so.”

Lone Star specializes in buying assets from financial institutions looking to cut debt or raise capital. The company made its name acquiring distressed loan portfolios and lenders in Asia starting in the late 1990s with investments ranging from golf courses in Japan to office towers in Seoul.

Grayken’s company typically wagers on assets that have a real-estate component. U.S. investments have included supermarket Southeastern Grocers Inc., which filed for an initial public offering in September, and Del Frisco’s Restaurant Group Inc.

New Fund

Lone Star raised $6.6 billion for a new fund this year to invest in commercial real-estate debt and equity, mainly in Europe. The firm has said its U.S. investments from that pool will be mostly in secondary markets.

State Farm struck a similar deal this year. Two of W.P. Carey Inc.’s real-estate investment trusts bought the insurer’s operation center in Austin, Texas, in an August transaction valued at about $110 million.

The main reason investment-grade companies do these kinds of transactions “is to have the real-estate capital earn higher returns in core businesses,” said Brian Scott, senior managing director of the sale-leaseback group at CBRE Group Inc., the world’s biggest commercial real-estate services firm. State Farm is rated AA by Standard & Poor’s, two levels from the top.

Competition for U.S. auto-insurance customers intensified in the past decade with carriers spending almost $6 billion on advertising last year, data compiled by SNL Financial show. Many companies failed to increase their market share even with the higher expenses, McKinsey & Co. said in a January report.

State Farm’s portion of overall policy sales was little changed at 18 percent in the four years through 2012, according to data compiled by the National Association of Insurance Commissioners. Berkshire gained about 2 percentage points to end the period at 9.6 percent of the market. Progressive also gained share.

–With assistance from David M. Levitt and Pierre Paulden in New York and Hui-yong Yu in Seattle. Editors: Dan Reichl, Stephen West