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Private Equity Real Estate Fundraising at a Five-Year Low

by Ignatius Fogarty

  • 10 Jul 2009
  • RE

21 Funds hold a final close raising an aggregate $10.3bn, the lowest quarterly total since Q3 2004

Private Equity Real Estate Fundraising data for Q2 2009 is in, with the figures showing that private equity real estate funds are struggling to raise capital in the current environment. Q2 2009 represents the lowest fundraising quarter for private equity real estate funds since Q3 2004, when 22 private equity real estate funds raised an aggregate $8 billion.

Although only $10.3bn was raised in Q2 2009, the aggregate target for funds on the road has decreased by a higher amount of $28bn over the past three months. This is as a result of fund managers reducing their fundraising targets, and in some cases shelving or abandoning their funds altogether. In 2009 to date there have already been 36 cases of real estate funds being abandoned or put on hold, compared with 25 funds being abandoned or put on hold over the whole course of 2008.

The reduction in number of fund managers with new vehicles in market will go some way to reducing the competitiveness of the fundraising market, and may benefit those seeking institutional support for their new offerings. However, with many investors still unable to commit new capital, and with other investors more cautious towards the market following significant write-downs in value for existing investments, fundraising will remain an extremely challenging task in 2009.

The good news for the industry is that investors are generally positive towards the long-term future of the asset class, with 84% of investors polled indicating that they would be returning to invest in the medium to long term. However, it is clear that many of these investors are choosing to delay making new investments until the long-term economic outlook becomes clearer.

Although the number of funds achieving a final close has fallen, we are seeing more activity in terms of interim closes. Of the 378 funds on the road seeking $199 billion, 154 seeking an aggregate $74.9 have reached an interim close. Fundraising is taking longer than it has done in the past, and managers are responding to this by holding more interim closes, enabling them to effectively start investing their funds while extending their fundraising process in order to achieve a final close at a higher level at a later date.

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