“We are also seeing when a large investor comes in, they really do want that co-investment right,” he said. “They want to put a slug of money into the fund, but then they want to have the ability to come in and invest deal by deal. And that’s the way they feel they get a little bit more control. They also reduce their overall cost of fees because they are not paying the same level of fee if they are coming through a co-invest than if they come directly through the fund. But they want access to your deal flow. That’s the key.”

And while the industry’s big guns like Blackstone Group and Related Cos. are ramping up their strategies to raise multi-million and billion dollar funds this year, survey results found that fund raising periods for smaller private equity funds are extending.

In the third quarter of 2011, the average time for funds to achieve a final close was 16.6 months, compared to 8.5 months in 2007, just before the real estate bubble broke. The size of funds itself are also shrinking due to increasing competition. Roughly 452 private real estate funds are in the market now, and Marra said fundraising has shown a steady decline from 2009 to present. The reason, he explained, is because fewer LPs are willing to commit to risky funds with high chances of fees.

At the same time, there are bright spots. Niche markets such as senior housing and luxury real estate will be successful due to their uniqueness in the already-crowded marketplace, Marra explained.

“Today we are seeing to get that fund off the ground, you have to have a really good story,” he said. “The field is very, very packed.”