During Q3 2011, 17 private equity real estate funds reached a final close, raising an aggregate $11.0bn, which represents a 16% decline on the $13.1bn that was raised by 27 funds in Q2 2011. Funds with a primary focus on North America raised the most capital during Q3, with six funds raising an aggregate $5.5bn. Nine Europe-focused funds reached a final close, raising $4.8bn, while two Asia and Rest of World-focused funds raised a combined total of $0.7bn. In addition to funds holding final closes, 28 held interim closes, raising $7.4bn towards their fundraising targets, including a significant $4bn first close held by Blackstone Real Estate Partners VII.
Notable Funds to close in the quarter included Lone Star Fund VII, which raised $4.6 billion. Elsewhere, ECE Real Estate Partners raised €775mn for ECE European Prime Shopping Center Fund and Altarea Cogedim raised €630mn for AltaFund Value-Add I. Funds that closed so far in 2011 spent an average of 16.6 months on the road. This represents a small decrease from 2010, when funds spent an average of 17.1 months on the road, but a significant increase from the boom years of 2006 and 2007, when funds spent less than 10 months in market on average.
The $11.0bn that was raised in Q3 represents a small decrease on the capital raised the previous quarter; however we anticipate the latest quarterly fundraising figures to improve by around 10-20% as more information becomes available. There were a number of significant interim closes in the quarter, which does indicate that there is momentum in the fundraising market at present. Despite this, the level of competition remains intense, however, with more than 430 funds currently in the market challenging for institutional capital. While several firms have closed funds on or above target in Q3, many others have been forced to delay anticipated closings.
Institutional investor appetite for private equity real estate funds remains mixed, with a recent Preqin study finding that only 35% of investors expect to make new fund commitments in the next 12 months, although a further 16% have yet to decide whether they will be active in the coming year. In the medium and longer term, very few investors are abandoning the asset class and 69% of all investors in private real estate funds are currently below their overall target allocations to real estate. Fund managers will have to work hard to stand out from the crowd in order to achieve fundraising success and many will still face long fundraising periods, with no guarantee of success.