17 private equity real estate funds reached a final close in Q1 2011 having raised an aggregate $5.8 billion. This represents a small decrease on the $6.5 billion raised in Q4 2010. Fundraising for the asset class remains far slower than the industry saw in 2006-2008, when quarterly totals were typically in excess of $30 billion.
Real estate funds primarily focusing on North America raised the most capital, with eight funds receiving aggregate commitments of $3.5 billion. Five Asia and Rest of World-focused funds received an aggregate $1.2 billion, with four Europe-focused funds raising $1.1 billion. In addition to the 17 real estate funds that held a final close in the quarter, 40 funds held an interim close during Q1, raising a total of $5.7 billion towards their overall targets.
There are currently 439 private equity real estate funds in market, seeking aggregate commitments of $160 billion. The aggregate target of funds in market has risen by $28 billion over the past two quarters, having fallen throughout 2009 and the first three quarters of 2010. There are now more real estate funds on the road than at any other time in the history of the industry. Funds to close in Q1 2011 spent an average of 17.3 months in market, a small increase from the 16.7 months for funds closed in 2010 and a significant increase on the average of 9.3 months that funds closed in 2006 spent in market.
Although the private equity real estate fundraising market is still slow, there are signs of improving investor sentiment towards the asset class. While this has yet to translate into final closes, there have been a significant number of interim closes being held, which means that an increase in final closes taking place over the coming year is likely. The fundraising market remains extremely overcrowded, with the aggregate target of funds on the road equating to more than three times the amount raised in 2010. There will still be many firms which are forced to delay or abandon their fundraising efforts, and further consolidation within the private equity real estate space is likely to take place. The type of funds that closed in Q1 reflects the changing nature of the private equity real estate fund market. Only one fund to close in the quarter did so with commitments of more than $1 billion, and most funds to close are focused on a particular property type and/or region. This suggests that in the current climate, it is those managers that can prove their expertise in a particular strategy that are having the most success attracting commitments from investors.