Q2 Kicks Off With Record Number of CRE Funds On the Road
“Both the number of funds raising as well as the aggregate amount of capital targeted have increased consistently over the past few years,” Preqin says in its report.
The global real estate market endured a challenging first quarter of 2020, thanks to the COVID-19 pandemic that immersed the market in uncertainty and sent financiers looking for a more conservative approach to investing in real estate, according to a new report.
But the “Preqin Quarterly Update: Real Estate Q1 2020” says some signs suggest the slowing of real estate activity is a short-term glitch that will change as the economy recovers. London, England-based Preqin provides global data, insights and tools for the alternative asset industry, including an online platform for the real estate industry.
“At the start of Q2 there are a record number of real estate funds on the road, which reflects a healthy level of appetite,” the report notes. “Both the number of funds raising as well as the aggregate amount of capital targeted have increased consistently over the past few years.”
The report examines five areas:
Fundraising. Total capital raised in the first quarter dropped to $18 billion, compared with $51 billion in the first quarter of 2019. Less risky value-added funds captured the majority of investor capital in the first quarter, raising $10 billion from 19 funds closed.
Funds in Market. Both the number of funds raising capital, and the aggregate amount of capital targeted have risen year on year. “As capital consolidation continues to characterize the real estate fundraising market,” the report predicts, “the largest funds are set to sweep up most industry capital.”
Investors. The proportion of investors planning to make a single fund commitment over the next 12 months has increased from 61% in the first quarter of 2019 to nearly 72% in this past quarter. But only 2% of investors plan to commit to 10 or more funds over the next year, compared with 6% this time last year.
Deals. For the first time in three years, deal activity dropped dramatically in all regions and in all property sectors. The number of deals in North America was the lowest for the region in any quarter in recent years, dropping well below the rest of the world. The report blames the economic markets roiled by COVID-19 amid the increasing competition for assets during this period.
Performance. In general all other private capital asset classes, except private debt, outperformed real estate over a one year period from June 19, 2018, to June 19, 2019. The dip in real estate performance is especially seen in strategies associated with higher risk.