LONDON—The fourth quarter of 2017 saw private equity fundraising in general pick up the pace and reach a new annual high after a slowdown in Q3. However, Preqin says that pickup didn't extend to real estate, where the 12-month global total fell short of the previous year's, not to mention the record haul of US$136 billion that private real estate funds brought in for 2015.
The year that just ended saw 263 real estate funds close for a combined US$109 billion in investor commitments. That compares to 321 funds that closed on a total of US$126 billion in 2016 and 351 funds that garnered a record US$136 billion in 2015.
“The private real estate market is currently running in counterpoint to the wider private capital industry,” says Oliver Senchal, head of real estate products with Preqin. “Whereas private equity and private debt funds have both marked record years in '17, the real estate asset class has seen activity retreat slightly over the past 12 months.
“Fundraising levels are still high—this is the fifth consecutive year in which funds have raised more than $100 billion—but we are not seeing a surge of activity,” he continues. Forty-seven percent of private RE funds failed to meet their targets last year, a five-year high for this metric.
Senchal notes that the recent performance of private RE funds may be evidence of “growing sentiment that the market is at risk of becoming overheated. There certainly does seem to be a rebalancing of activity between various strategies, which perhaps indicates that investors are looking increasingly for downside risk protection.”
Specifically, opportunistic funds have seen their share of capital raised decline from US$49 billion in '16 to US$34 billion in '17. By contrast, value added and debt vehicles have become more prominent, with debt funds in particular marking a record annual capital total of US $28 billion. “If investors are seeking to protect themselves from a turn in the market, we may see this trend continue and strengthen into 2018,” says Senchal..
Real estate dry powder globally stood at US$249 billion as of this past December, up from US$238 billion in the year-ago period. Currently, there are 574 private PE funds in market, seeking a total of US$191 billion from investors, a tally that Preqin calls a record high for the industry.
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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.
