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Alternatives in 2019: Signs of a Slowing Real Estate Fundraising Market?

by William Clarke

  • 21 Jan 2019
  • RE

The closed-end private real estate market shows some signs of having slowed in 2018. Overall fundraising activity remains substantial, with 298 funds closing globally in 2018, raising a total of $118bn. Preqin expects these figures to rise by up to 10% as more information becomes available, but nonetheless the year seems unlikely to match the 406 funds that raised $132bn in 2017.

Despite half of investors in our most recent survey saying that the market is due for a correction within the next three years, fundraising through the year was focused on higher-risk value-added and opportunistic funds, which raised $36bn and $43bn respectively. By contrast, core and core-plus was significantly down from $15bn in 2017 to $6.1bn in 2018. This would suggest that there has not yet been a significant movement by investors down the risk/return curve.

Key real estate fundraising stats:

  • A total of 298 real estate funds closed in 2018, raising a combined $118bn. This represents a small decline from the $132bn raised in 2017, and a larger fall from the 406 funds closed in that year.
  • Funds that closed in 2018 spent an average of 18 months in market – a 10-year high. However, 45% closed above target, the largest proportion recorded by Preqin in the past five years.
  • Value added funds were the most numerous, with 115 funds closing, while opportunistic funds secured the most capital ($43bn). Debt funds continued their strong fundraising from 2017, but core and core-plus fundraising fell sharply from 2017.
  • Dry powder kept rising in 2018, but at a slower pace. At the end of the year fund managers held $295bn in available capital.
  • At the start of 2019, there are 674 real estate funds in market, seeking a total of $250bn. This is up significantly from a year ago, when 573 funds were targeting a combined $191bn.

 Preqin’s Tom Carr, Head of Real Estate, commented: “The fundraising market in 2018 showed some signs of hesitancy. Activity was undoubtedly still substantial, with funds raising more than $100bn for the sixth consecutive year, but the pace of fund closures has notably slowed. However, despite concerns about potential market corrections, it does not seem that investor appetite is slowing.

It also appears that investors are not moving down the risk/return curve. Debt funds had another strong year, but core and core-plus fundraising was less than half of 2017’s levels. This is despite many investors we interviewed saying that they were seeking to position themselves in anticipation of a correction and would be targeting these lower-risk strategies in the coming months.”

The 2019 Preqin Real Estate Report is due for release soon, which contains more detailed fundraising data, as well as comprehensive data on fund managers, deals and exits, investors, performance and much more. In the meantime, please take a look at our 2018 Fundraising Update or browse Insights for more of our recent research.

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