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NEW YORK CITY-Fundraising in the real estate private equity fund market is on track to have a successful year again, according to a survey of 60 US-based fund sponsors--representing more than 175 individual funds--conducted by Ernst & Young LLP. Existing real estate private equity funds held $17.5 billion of capital to invest from funds raised through the end of 2004. They expected to raise an additional $18 billion this year.
Gary Koster, leader of Ernst & Young's Real Estate Private Equity Services Practice in the Americas, tells GlobeSt.com that the trend shows no sign of slowing. "I don't have a crystal ball, but I don't think so." The survey indicates the sector will have well over $100 billion of leveraged purchasing power for new acquisitions heading into 2006.
"The survey confirms what many observers have suspected: there's an overwhelming amount of capital currently looking for a home in commercial real estate--much of it from the proliferation of private equity funds--and there's very little sign that investors' ardor will dampen in the foreseeable future," Koster continues. "We saw more capital raised by funds in 2004 than in the previous two years combined."
One impact of all this capital chasing real estate is that increased competition leads to higher pricing. "Clearly, the tremendous competition for real estate deals is having an impact, making it harder for fund sponsors to put money out."He expects that because so many funds have entered the marketplace--at least 30 were raised in 2004 alone-- there will be a contraction of the number of players over the next few years. "In the next 12 to 18 months we're likely to see a shakeout of sorts among real estate private equity funds, with the funds that can source deals and find creative ways to add value positively differentiating themselves in the market."
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