Europe: A Wall of Capital – November 2014 (Part II)

by Olivia Harmsworth

  • 20 Nov 2014
  • RE

A particularly notable trend in the European fundraising market over the last 12 months is the increasing prominence of international players raising Europe-focused funds. A significant 55% of aggregate capital raised in 2014 so far has been raised by managers based outside Europe, the highest proportion since 2008. From 2009 to 2010, the retreat of international managers from the European fundraising market is particularly evident, with the proportion of aggregate capital raised by these managers decreasing from 36% to just 2% over this time period. The recent growth in Europe-focused fundraising by managers based outside the region demonstrates their growing sense of positivity toward European real estate investments. 

Also notable is the return of many of the largest US private equity giants to Europe. The largest private real estate fund to close in 2014 to date, Lone Star Fund IX, raised $7.2bn and focuses 50% of its capital on Europe, targeting non-performing and sub-performing single-family residential real estate debt. Blackstone Group has recently announced it is re-opening Blackstone Real Estate Partners Europe IV, already the largest ever solely Europe-focused private real estate fund for existing investors, with the target of raising an additional €1.5bn. JP Morgan Asset Management has started marketing the opportunistic JP Morgan European IP Fund III, while the likes of Starwood Capital Group, Rockpoint Group and Westbrook Partners are all marketing large offerings which will allocate a portion of their capital to Europe.  

Looking ahead, investor appetite for European real estate investments looks set to remain strong, with the proportion of institutions targeting European investments increasing for investors based in Europe, North America and Asia. A notable 76% of Europe-based institutions plan to invest domestically in the next 12 months, compared to 59% which stated so in 2013. Fifty-two percent and 25% of Asia- and North America-based investors respectively are also planning to invest in the region over the next year, demonstrating the global pull of European real estate. 

However, capital is likely to remain concentrated among larger, more experienced managers, as investors remain drawn to firms with a proven, strong track record. As a result, standing out from the crowd remains very difficult for managers, meaning that those without a demonstrable track record will need to be able to successfully articulate to investors how they are best placed to find value in the current market.

The two largest Europe-focused funds in market, Hermes Real Estate Senior Debt Fund and AgFe Real Estate Senior Debt Floating Rate Fund, will both focus solely on debt investments, demonstrating the continued prominence of the strategy in Europe. However, with banks increasingly back in the market, debt funds are finding the market more competitive. This will also be the case for equity investors, as the record dry powder held by private fund managers, as well as more interest in Europe from other players, may continue to push up prices.  

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