Capital raised by private real estate funds in 2013 amounted to $77bn, 17% up on 2012. The average size of private real estate vehicles that held final closes in 2013 was $511mn (significantly higher than the $332mn average size in 2012), the highest ever recorded by Preqin. This comes at a time when fundraising levels are at a five-year high, and investor sentiment towards the asset class is positive. However, challenges still remain - far fewer funds were raised in 2013 compared to the year before, dropping from 224 in 2012 to 164 in 2013. Additionally, funds are also taking 19 months on average to reach a final close, and capital raised is being concentrated among fewer larger managers.
Higher risk/return profile strategies dominated the fundraising environment in 2013, with 46% of aggregate capital accounted for by opportunistic funds, with 54 of these 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.
As of January 2014, there are 446 closed-end private real estate funds in market, targeting $150bn. In terms of strategy, 64% of the number of funds in market are primarily following either an opportunistic or value added strategy. Over a quarter (27%) of capital targeted is by managers which have raised nine or more funds previously. A sizeable 43% of funds in market have already been on the road for more than 18 months. The two largest funds in market are both managed by Blackstone Group: Blackstone Real Estate Partners Europe IV, targeting commitments of €5bn, and Blackstone Real Estate Partners Asia, targeting $4bn in investor capital.
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. With more than 440 funds on the road, the fundraising market remains extremely competitive and, despite increased investor appetite, it is clear that the firms that launch new funds in 2014 will have to work very hard to stand out from the crowd if they are to successfully raise capital.