During June and July 2012, Preqin conducted extensive interviews with over 100 institutional investors in private real estate in order to find out about their current views on the asset class and their appetite for new investments.
Thirty-seven percent of investors interviewed by Preqin stated they would deploy more capital to private real estate funds in the next 12 months than in the previous 12 months. Compared to the results from January 2012, when only 26% of investors stated that they would commit more capital throughout 2012 than they had in 2011, investor confidence appears to have improved in the first half of 2012. Nonetheless, a sizeable 32% of investors interviewed did not commit to funds in the last 12 months and do not anticipate making commitments in the next 12 months. Fifteen percent of investors will invest less capital in the next 12 months than in the last 12-month period, and 17% intend to commit the same amount in the next 12 months as they did in the last 12 months.
Fifty-two percent of investors are taking an opportunistic approach and have no set number of funds they expect to commit to in the next 12 months, with many only planning to invest if attractive opportunities present themselves. A sizeable 27% expect to commit to 1-2 funds, with 10% considering commitments to 3-4 funds. A further 10% of investors will commit to five or more funds in this period.
With 37% of investors planning to commit more capital in the next 12 months than they did in the past year, we could see an increase in fundraising for private real estate funds in the coming year. However, with over 50% of investors not planning new commitments, a dramatic increase in the rate of fundraising is unlikely. The fundraising market remains extremely competitive, with 466 funds currently being marketed, and the $162bn aggregate target of these funds representing more than three times the amount of capital raised for private real estate funds in 2011. Fund managers are going to have to work very hard to stand out in this climate. One Australian investor, echoing the sentiments of many other respondents, said those managers with “a consistent performance track record, and an investment strategy that suits the current environment” would stand out. Many of the investors interviewed want to see a strong track record from fund managers, with excellent local knowledge following closely as a top priority.