Private Equity Real Estate Debt Funds Multiply in 2016 - August 2016

by Andrew Moylan

  • 11 Aug 2016
  • RE

Preqin research finds that in recent years, real estate debt fundraising has grown significantly, as fund managers globally have raised $58bn for the strategy over 2013-2015, significantly more than the average annual level of capital raised between 2006 and 2012 ($8bn). Moreover, 2016 looks set to continue this growth, as the $9bn secured from 18 vehicles that have reached a final close this year so far puts 2016 on track to exceed the $15bn raised in 2015.

With institutional investors committing more money to private equity real estate debt funds in recent years, fund managers within the industry are bringing more and more debt vehicles to market to satisfy this demand. The capital targeted by real estate debt vehicles reached a record $32bn in July 2016, up from $23bn 12 months prior, while the number of debt funds targeting investor capital grew from 52 to 65 over the same period. Now, debt strategies account for 13% of all private real estate funds in market and 18% of the aggregate target capital, the largest proportion of any strategy other than opportunistic and value added funds.

The diversification that debt strategies offer real estate investors and managers could be key to navigating a difficult and competitive landscape. For institutional investors, debt strategies offer the potential to deliver strong returns and reliable income in a low-return environment, while for fund managers, launching debt funds offers a route to expand their businesses and to deliver more investment strategies for their clients.

With many investors yet to make their maiden investments in real estate debt, and several currently looking to enter the marketplace, the strategy looks set for further fundraising growth. Private equity real estate firms appear to have reacted to this growing investor appetite by launching a number of new debt funds in the past 12 months, with these vehicles becoming an increasingly key part of their portfolios.

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