Opportunistic Closed-End Private Real Estate Funds Increasingly Reach or Exceed Target Sizes

by Abbie Smith

  • 06 Mar 2015
  • RE

Private real estate fundraising for opportunistic closed-end funds has enjoyed considerable success over the last decade, peaking in 2008 when 123 funds closed, raising an aggregate $73.8bn. Following a drop in fundraising in 2009, capital raised for opportunistic funds has remained consistent, until peaking once more in 2012.

Since 2012 there has been a steady decline in the number of opportunistic funds reaching a final close, with only 61 vehicles closing in 2014, compared to 91 funds in 2012. However, the amount of capital raised has remained steady, with $32bn raised in 2014 and $34bn in 2012. This suggests that capital is becoming more concentrated among fewer, often more experienced managers.

Fundraising figures for recent years indicate that institutional capital is particularly focused on European property investments, with capital raised focusing on the region in the period 2014 to 2015 so far exceeding that of North America-focused funds, despite less than half the number of funds reaching a final close in comparison. In the period 2014 to 2015 YTD, 16 Europe-focused opportunistic funds raised an aggregate $14.6bn, compared to 36 opportunistic funds raising an aggregate $13.3bn to invest in North American property.

The chart below illustrates that 64% of opportunistic funds met or exceeded their target size in 2014, compared with only 45% in 2012. Additionally, a significant 20% of opportunistic funds exceeded their target size by 125% or more in 2014, compared with only 12% that did so in 2012.  

Furthermore, the time spent on the road by opportunistic private real estate funds appears to be declining in comparison with funds focusing on other strategies. In 2012 and 2013, opportunistic funds spent an average of 17.7 and 14.7 months in market respectively, while all other funds spent an average of 18.2 and 17.5 months on the road respectively.

Preqin’s Real Estate Online service currently tracks 125 opportunistic closed-end funds in market, with an aggregate target size of $73bn. This contrasts considerably with the opportunistic fundraising market one year ago; in March 2014, there were 142 primarily opportunistic funds seeking capital, aiming to secure an aggregate $49bn from investors. As a result, managers appear increasingly confident in their ability to attract institutional capital for opportunistic real estate investments, for target sizes are rising. With the number of funds in market remaining steady, it seems that capital raised by opportunistic funds will continue to be concentrated among fewer managers seeking to raise larger funds.

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