Central and Eastern European (CEE) private real estate fundraising has been challenging in recent years. No private real estate funds focused on the CEE market closed in 2013. This is a marked difference to the heights achieved in 2007, when 24 CEE-focused vehicles closed on an aggregate €3.5bn. The effects of the financial crisis were evident in subsequent years, as investors curtailed capital commitments to opportunistic investments in emerging markets, such as CEE, in favour of funds focused on the income stability of core properties in familiar, developed markets.
Fundraising declined to €1.3bn in 2008, raised by 17 CEE-focused funds, while only nine funds closed accumulating an aggregate €1.1bn in the following year. 2010 proved to be a particularly challenging year for private real estate funds focused on the CEE market as only three vehicles collected a total of €20mn. In contrast, six CEE-focused vehicles raised an aggregate €800mn in 2011 but the aggregate capital raised by a total of five funds declined to €700mn in 2012, indicative of a weak fundraising environment.
Investors actively consider the track record and experience of private real estate fund managers when making commitments to funds. Although some investors do consider first-time funds, the majority of investors prefer to commit to experienced managers. Over half of CEE-based fund managers (52%) are managing or have managed one fund, while 41% have managed between two and three vehicles. Only 7% of CEE-based fund managers have managed four or more funds.
The largest CEE-focused private real estate fund to have closed in the last three years is Hines Russia & Poland Fund, managed by Hines, which closed in Q2 2012 and raised an aggregate €390mn. The opportunistic vehicle targets acquisitions, developments and redevelopments across a diversified range of property sectors including office, industrial, retail and residential, throughout Russia and Poland. Eighty percent of the capital is targeted for investment in Russia with the remainder to be allocated to Poland.
KSP Real Estate Investment Management’s Converging Growth Fund is one of the largest CEE-focused private real estate funds in market. The value added and distressed fund seeks to target office and retail properties that can be repositioned or redeveloped to a core institutional standard, investing a minimum 80% of the capital in Poland. Subject to investor approval, it may invest a proportion of the equity in the Czech Republic.