CRE Fundraising Still Reeling From the Pandemic

Private equity fundraising for commercial real estate has had a slow start to the year, still hampered by the effects from the pandemic. 

In Q1, fundraising continued to suffer, with the number of funds reaching final close more than halved to 52, securing $25 billion. Preqin says this a 25% decline in aggregate capital raised and a more than 50% fall in the number of funds reaching final close compared to Q1 2020.

In Q1, 1480 deals were completed with an aggregate value of $44 billion. These represent declines of 24% and 44%, respectively, compared to Q1 2020. Over the next 12 months, 58% of investors expect to commit less than $50 million of fresh capital to funds.

At the same time, there are a lot of groups raising funds. As of April 2021, Preqin says a record 1,088 funds are in the market seeking a combined $338 billion from global investors. This isn’t necessarily a positive as Preqin says it highlights “weakness, rather than strength” after poor volumes in 2020.”

But this weakness isn’t a widespread phenomenon. Preqin notes that larger funds closed in Q1, demonstrating the ongoing trend of capital consolidation into the largest fund managers globally.

“This is understandable given the significant uncertainty now facing key real estate segments like retail and office,” according to Preqin.

While retail and office led the decline in PERE deals for Q1 2021, deal numbers were up 14% year-over-year for industrial and logistics assets.

“The real estate asset class is still suffering from the effects of the pandemic,” David Lowery, real estate spokesperson for Preqin, said in a prepared statement. “The number of funds closed is down in Q1 2021, compared with Q1 2020, but the amount of capital raised has fallen by a lesser extent. This points towards fewer but larger funds closing—a continuation of the trend witnessed in 2020.”

Even in a difficult 2020, real estate assets under management reached $1.1 trillion for the first time in September 2020, according to Preqin. A record number of this amount, 2.7%, is held by secondary strategies.

Many funds are also lining up to chase distressed assets. For instance, last month Greenberg Gibbons announced that it is in the final stages of raising a $100 million private equity fund to make strategic shopping center acquisitions in East Coast, Southeast and selected Midwest markets. The fund, which will have the capacity to acquire $300 million of assets, will reposition retail spaces, make property upgrades, develop additional uses and improve operations.

Also last month American Ventures Partners launched a fund to invest in distressed US commercial real estate. The fund, which will provide a tax-advantaged structure to non-US investors, has a target capital raise of $1 billion.