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Private Real Estate Fund Strategies Sought by Investors in the Year Ahead – November 2012

by Farhaz Miah

  • 14 Nov 2012
  • RE

Preqin’s Real Estate Online database, shows that a significant 53% of future real estate fund searches are for core investments, highlighting the risk-averse attitudes of many institutions. Value added vehicles are being targeted by 44% of investors, with the same proportion of institutions also considering opportunistic funds. This demonstrates that there remains an appetite for higher risk/return profile funds.

Core-plus funds, which target slightly higher returns with marginally higher risk than core funds, are being targeted by 28% of investors. Vehicles with a debt strategy are attractive to 23% of investors, with a further 19% exhibiting a preference for distressed funds. Debt and distressed vehicles have been gaining traction since the onset of the financial crisis, with a large number of investors believing that there are excellent opportunities for investment in these sectors.

Fund of funds vehicles are only being considered by 4% of investors planning to commit to real estate funds in the next 12 months. Contributing factors to this low proportion may include investor desire to gain greater control over investments and also to avoid paying a double layer of fees. Nonetheless, for smaller investors, the diversification offered through a single commitment to a fund of funds vehicle remains attractive, and, as a result, the appetite for the fund of funds route to market may recover. Only 2% of investors are targeting real estate secondaries funds, a market which, while growing, remains relatively small.

Examination of the regions being targeted by investors active in the next 12 months shows that 46% of institutions are looking to gain exposure to North American real estate. This region is the most popular destination for institutional investment via private real estate funds. Europe-focused vehicles are targeted by 40% of investors, despite the ongoing eurozone economic difficulties. Thirty-seven percent of investors have a global outlook for their fund investments, while the Asia-Pacific region is attractive to 31% of investors.

This data shows that core, value added and opportunistic strategies are likely to receive the most attention from private real estate investors in the coming year, and North American markets are likely to continue to garner institutional capital.

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