As of May 2013, there are 455 closed-end private real estate funds in market seeking $165.3bn in aggregate commitments. With so many funds in market utilizing a range of strategies and targeting various property markets and regions globally, it is important for investors to identify the best opportunities and most suitable funds when deploying capital to meet their real estate allocations.
The 2013 Preqin Investor Network Global Alternatives Report found that the majority of funds open for investment are multi-strategy funds, accounting for 42% of private real estate funds in market, and 40% of the aggregate capital targeted. In addition, 58% of private real estate funds in market are multi-sector funds, investing in more than one property type. With so many vehicles providing exposure to varying levels of risk and diversified property portfolios, fund selection is a complex process where due diligence centres around manager capability and track record for a range of property types and strategies.
Funds following solely opportunistic strategies account for the largest volume of capital being targeted in market beyond multi-strategy vehicles, representing 17% of private real estate funds in market and 21% of aggregate capital targeted. Debt funds account for 15% of the total capital targeted by private real estate funds in market but only 9% of the number. Private real estate funds following a debt strategy have a large average target size of $630mn due to ample investment opportunities, but a smaller number of fund managers are specializing in debt due to the strategy’s relatively new prominence within private real estate funds. With finance difficult to obtain in the wake of the financial crisis in 2008, private real estate managers have stepped in to fill the void.