Investor Activity in Private Real Estate in 2011

by Forena Akthar

  • 16 Feb 2011
  • PE
  • RE

Preqin’s recent study examining investor attitudes towards the private real estate market revealed that 45% are likely to commit to private real estate funds in 2011, while 49% are unlikely to invest and 6% are undecided. The state of the real estate market, the drop in property valuations and the poor performance of private equity real estate funds of recent vintages would have influenced the decisions of those that are not planning to invest.

Private real estate activity in 2011 is also likely to differ by investor size and location. The likelihood of investing in private funds in 2011 increases as the total assets of the investors increases. 33% of investors with total assets of less than $1bn are likely to invest in private funds in 2011; this increases to 40% for those with assets of $1-10bn and 69% for those with assets of $10bn and above. A significant 62% of investors with assets of less than $1bn will be inactive in private real estate in 2011. Smaller institutions, which typically make commitments less frequently, are more likely to halt private real estate allocations due to market conditions and reduced distributions.

The results of the study suggests that North American institutions are more likely to make new fund commitments in 2011, with 60% expecting to invest in 2011. Only 31% of European institutions surveyed made commitments in 2010, and 65% do not anticipate making new commitments in 2011. In addition to the factors influencing all institutions, this decline in activity of European investors also reflects the impact of a number of new investment regulations in the region. This includes the Solvency II legislation, which will affect European insurance companies and certain asset managers.

64% of the investors interviewed were below their target allocations to real estate, while 28% were at their target allocation and 8% were above their targets. A higher proportion of investors based in North America were below their targets compared to their European counterparts. Investors are likely to maintain their targets to real estate in the long term but, unlike previous years, under-allocation to the asset class is no longer coercing investors into making further commitments to real estate in the short term.

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

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