Core-plus private real estate funds provide the opportunity to invest in core properties that require some degree of enhancement. Of all the private real estate funds closed in the past five years on Preqin’s Real Estate Online, 7% are core-plus vehicles, accounting for 5% of all capital raised.
As seen in the chart above, North America-focused core-plus real estate funds have largely dominated the fundraising environment over the past five years; representing nearly half the number of funds raised since 2012, these funds account for approximately the same proportion of aggregate capital raised. However, 2016 was the first year in which other regions began to overtake North America-focused core-plus fundraising, with both Europe- and Asia-focused funds ($1.3bn and $3.1bn respectively) raising more than the $0.9bn raised from their North America-focused counterparts.
Preqin’s Real Estate Online profiles 42 core-plus real estate funds currently in market, targeting an aggregate $11bn from institutional investors. In line with previous trends, funds in market are predominantly targeting more developed markets, with 59% focused primarily on core-plus investments in North America and 26% in Europe. Interest in these vehicles should be strong from the investor community: 42% of investors with active mandates for private real estate are looking to target the strategy in the next 12 months, a significant increase from the corresponding proportion (25% of active investors) at this time last year.
However, there are significant challenges that these managers must overcome. There is much competition for core and core-plus assets, and the largest proportion (63%) of core-plus managers surveyed by Preqin in June 2017 cited asset pricing as the key issue in the market, followed by deal flow (50%), and all core-plus managers surveyed said that asset pricing has increased since last year. If the firms on the road want to be successful in securing capital, they must be able to articulate how their fund will adapt to these new conditions. Many have already begun to explore other markets, while one firm stated that they will look to utilize a “more targeted deployment strategy”.