In order to examine investor sentiment towards the private real estate market, Preqin carried out a series of extensive telephone interviews with over 180 investors in closed-end private real estate funds. Investors of varying size, type and geographic location were surveyed to examine their activity in the asset class in 2011 and their intentions and attitudes towards investing in private real estate going into 2012.
Only 34% of the investors surveyed committed to private real estate funds in 2011. The uncertainty in the wider financial markets throughout 2011 affected investor confidence and did little to encourage those investors who have refrained from investing in real estate since the financial crisis to return. Performance is also a factor, with real estate taking longer than many other asset classes to see an improvement in returns. While the proportion of investors making new fund commitments remains relatively low, some investors will have funded existing commitments as fund managers have started calling up more capital as deal flow has increased.
The results suggest that the fundraising environment is unlikely to improve in 2012. Investor appetite for private fund commitments is lower than it has been in the past two years, with just 36% of investors stating that they were likely to commit to funds in 2012, compared to 45% in January 2011 and 47% in January 2010. Fifty-three percent of investors interviewed stated that they were unlikely to commit to closed-end private real estate funds in 2012 and 11% were undecided if they would invest.
The number of investors who are planning to commit to real estate varies with geographic location and assets under management. Larger investors are more likely to commit to private real estate funds in 2012; 51% of investors with more than $10bn in total assets are likely to invest, compared to just 26% of investors with less than $1bn in total assets which are likely to invest. North American investors are more likely to commit to private real estate funds in 2012 than European investors, with 41% of those based in North America likely to make a commitment. Only 27% of European institutions surveyed committed to private funds in 2011, and just 30% are planning to invest in 2012.
It seems that the private real estate sector is yet to recover from the impact of the financial crisis and fund managers are still operating in a challenging fundraising environment. Although the situation has improved since the immediate aftermath of the financial crisis and some fund managers are successfully attracting commitments from investors, the fact remains that many fund managers are struggling to meet their equity targets as investors continue to take a cautious approach to investing in the asset class.