Average Private Real Estate Fund Tops $500M

Private real estate funds are back in favor, as capital raised by the segment in 2013 amounted to $77 billion, up 17% from 2012.

What’s more, the average size of private real estate vehicles which held final closes in 2013 was $511 million, the highest ever recorded by London-based researcher Preqin. This comes at a time when fundraising levels are at a five-year high, and investor sentiment towards the asset class is positive, but challenges still remain; far fewer funds were raised in 2013 compared to the year before, funds are taking 19 months on average to reach a final close, and capital raised is being concentrated among fewer larger managers.

Here are a few key factoids on recent private real estate fundraising activity:

– The average size of private real estate funds has reached $511 million, the highest value ever, and significantly higher than the $332 million average size in 2012.

– Although capital raised in 2013 has surpassed 2012 levels, the number of funds reaching a final close has fallen from 223 in 2012 to 162 in 2013, with capital increasingly concentrated among fewer managers.

– Higher risk/return profile strategies dominated the fundraising environment, with 46% of aggregate capital accounted for by opportunistic funds, with 54 funds raising $35bn in the year; additionally, 50 value added funds closed raising $16bn.

– Fundraising for first-time fund managers has become even more challenging, with only 7% of capital raised in 2013 accounted for by first-time funds; comparatively, 44% of capital raised in 2013 was accounted for by managers which have raised nine funds or more previously.

– The average time taken for a fund to reach a final close in 2013 was 19.0 months, only slightly lower than the average of 19.5 months for funds closed in 2012.

– Fund manager Lone Star Funds raised the two largest closed-end private real estate funds to close in the year, Lone Star Real Estate Fund III and Lone Star Fund VIII, which raised $7 billion and $5 billion in investor commitments respectively.

Here are a few key facts about the private real estate funds industry:

– As of January 2014, there are 451 closed-end private real estate funds in market targeting $151 billion.

– 64% of the number of funds in market are primarily following either an opportunistic or value added strategy.

– The two largest funds in market are both managed by Blackstone Group: Blackstone Real Estate Partners Europe IV, targeting commitments of €5 billion, and Blackstone Real Estate Partners Asia, targeting $4 billion in investor capital.

– Over a quarter (27%) of capital targeted is by managers which have raised nine or more funds previously.

– 43% of funds in market have already been on the road for more than 18 months.

“The fundraising data for 2013 is encouraging for the private equity real estate industry, with the amount of capital raised by funds holding final closes reaching a five-year high, reflecting increased institutional investor appetite for the asset class,” says Andrew Moylan, Head of Real Assets Products at Preqin. “The number of funds holding a final close in 2013 was significantly lower than the number which closed in 2012 however, and there are signs that the largest fund managers are accounting for a growing proportion of the total capital being raised. With more than 450 funds on the road, the fundraising market remains extremely competitive and, despite increased investor appetite, it is clear that the firms which launch new funds in 2014 will have to work very hard to stand out from the crowd if they are to successfully raise capital.”