Preqin’s recent study examining investor attitudes towards the private real estate market revealed that only 37% of the investors that were interviewed made new private real estate fund commitments in 2010. This is lower than the figure from the study Preqin conducted in Q4 2009, when 45% of investors interviewed had made new commitments in 2009, thus reflecting the downward trend in real estate fundraising.
A number of factors have contributed to this prolonged fundraising drought. Investors feel that there is still uncertainty in the market and are concerned about the varying issues that remain. Performance of real estate portfolios has remained poor, failing to show the same levels of improvement as other asset classes. It has left investors reasoning that it may be too early to make sizeable investments in property and instead investors may focus on asset classes generating stronger returns.
Another factor that may be influencing investors in their decisions to refrain from fund investments is the cash flow situation within their existing portfolios. In past years, with activity levels at a high, investors were continually having capital called up, and receiving capital back in the form of distributions. Therefore, it was necessary to constantly re-invest capital in new funds in order to maintain a stable allocation. In recent times, fund managers have been calling up committed capital at a slower pace, and with transaction levels low, investors are not seeing distributions from previous investments. As a result, investors have not needed to make new fund investments in order to maintain their allocations to the asset class. Many institutions Preqin spoke with indicated that they have a number of unfunded commitments which they expect to fund in 2011.
It is important to note that investor activity in 2010 differed by location and size. Of the North American investors surveyed, 49% made real estate fund commitments while 51% did not. This relatively even split contrasts with the pattern observed in European investors, where only 31% were active in 2010. In terms of total assets, 29% of investors with assets of less than $1bn made private real estate fund commitments in 2010; this increased to 39% for those with assets of $1-10bn and 45% for those with $10bn or more in assets under management.
The information in this blog is taken from Preqin’s February 2011 edition of Real Estate Spotlight, the monthly newsletter packed full of vital information and data, all based on our latest research into the private real estate industry. See all Preqin’s real estate research reports