Investors’ Private Equity Real Estate Strategy Preferences

by Forena Akthar

  • 20 Jan 2010
  • PE
  • RE

With the level of investment activity in private equity real estate declining in 2009, we look at how the strategic focus of investors has changed.

As expected value added and opportunistic vehicles are still the most commonly targeted strategies by investors. 73% of all private equity real estate investors are interested in value added vehicles, with the same proportion interested in opportunistic funds. These figures have not changed significantly since 2008, when 73% and 70% of investors were interested in value added and opportunistic funds respectively.

Distressed and debt funds have become more appealing following the credit crunch.  With traditional sources of liquidity drying up, the private equity real estate industry stepped in to fill the void and benefit where others cannot afford to take such risks. Subsequently, 30% of investors are now interested in distressed private equity real estate funds; the figure was 22% in 2008. This is an unprecedented level of interest and one that gained momentum over the course of 2009. Even more dramatic is the rise in the interest in debt funds. At the end of 2008, 14% of private equity real estate investors were interested in debt vehicles, while the figure now stands at 36%.

Preferences for lower-risk strategies such as core and core-plus is also increasing as investors are looking to reduce the level of risk in their portfolios. In 2008, 30% of investors were interested in core-plus vehicles, the figure has increased to 34% and more are expected to target these low-risk vehicles that utilize little or no leverage in 2010.

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