NEW YORK CITY—Fundraising in the closed-end private real estate space remains active, but the playing field is considerably less crowded. Preqin said Monday that 45 funds reached their close in the second quarter, down from 64 in Q1 and 97 in Q4 2015 and representing the lowest quarterly total in seven years.
With at least $29 billion raised globally during Q2—better than the $22 billion raised in Q1, albeit down from the year-ago fundraising level of $36 billion—“The first half of 2017 has seen robust fundraising activity continue in the private real estate market,” says Andrew Moylan, head of real estate products for Preqin.
Although the levels of capital raised haven't matched the peaks seen two years ago, they have been “consistent overall,” he says. “This in itself is notable: during a period when other asset classes are seeing fundraising records repeatedly broken, real estate fund managers and investors seem to be taking a less bullish attitude, and fundraising has remained broadly level over the past several quarters.”
It's apparent, though, that “the number of vehicles raising capital is continuing to fall,” adds Moylan. “Some investors have indicated that they intend to consolidate their real estate portfolios to commit more capital to fewer managers.
“Managers themselves, meanwhile, recently predicted to Preqin that the industry would see further consolidation over the next three years,” he continues. “In this context, it is perhaps unsurprising that the number of funds closed has fallen to its lowest level seen since 2010, despite capital totals remaining steady.”
The quarter just past saw 23 North America-focused funds raise a combined $13 billion, while 16 Europe-focused vehicles raised $16 billion, Preqin says. All but two of the 10 largest funds were raised by US-based managers, led by the Blackstone Group with Blackstone Real Estate Partners Europe V, a €7.8-billion European opportunistic fund.
Value added strategies saw the most funds closed (18), although opportunistic funds, while fewer in number (10), raised the most capital with $12.4 billion compared to $9.2 billion for opportunistic funds. Nine funds focused on debt, raising a total of $6.6 billion, while the four funds devoted to core, three devoted to core-plus and one devoted to distress raised a total of just $1.2 billion among them.
Almost half (48%) of the vehicles that closed in the first six months of the year failed to hit their targets, the highest proportion seen in five years. Conversely, though, the 39% of funds that closed at greater than 100% of their targets was not far behind the 40% that hit this mark in the year-ago period. Average time spent in market was 17 months, in line with last year's average and down slightly from 19 months in '15 and 18 months in 2014.
If fundraising lately hasn't hit the heights achieved earlier in the current cycle, then the amount of capital available to real estate fund managers has surpassed earlier highs. Preqin reports a record $249 billion of dry powder available to fund managers as of June.
As the current month began, there were 561 private real estate funds in market, seeking a combined $179 billion. Preqin data show that this number has risen steadily over the past seven years, more so than the ebbing and flowing of dry powder since late 2008.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
