Preqin’s Fundraising Momentum tool on Real Estate Online tracks the time spent in market for funds currently raising and funds closed. Of the 473 private real estate funds currently in market, 42% are in their first year of fundraising, 39% are in year two, and the remaining 19% have been raising capital for over two years. In terms of strategy, core and core-plus funds are spending longer in market, with 51% in their second year of fundraising, compared to 38% of value added and opportunistic vehicles.
Since 2011, private real estate funds have been spending an average of 18 months on the road, representing an increase of seven months on the pre-2008 levels. As expected, the time taken to hold a first close has also increased in this timeframe, now averaging seven months. Investor caution regarding private fund commitments has increased over this time period, with many spending longer conducting due diligence and also being wary of committing large amounts of capital. Fund managers, however, are still raising relatively significant proportions of their targets at first close, with around 35-50% being raised at their initial close.
European fund managers seem to have bucked the trend in recent years, with real estate funds closed by these firms since 2013 spending an average of just 16 months on the road. Europe-based managers are also now exceeding their target size at final close, and averaging just four months to reach a first close in 2014. Conversely, funds raised by firms based in Asia and regions outside of Europe and North America and Asia have spent an average of 21 months on the road in 2014, with 11 months required for a first close. This represents a large increase from 2011, 2012 and 2013, when vehicles from managers based in these regions spent just 14 months raising capital, and took just 6.3 months to hold a first close.
Looking at funds in market by target size, there is a general trend of larger vehicles spending less time on the road. For vehicles with a target of less than $500mn, 39% are in their first year of fundraising, and another 40% are in their second year. Of the vehicles in the $500mn to $1bn category, 44% and 46% are in the first and second respective years of fundraising, while for vehicles targeting $1bn or more, 62% are in their first year of capital raising, with just 30% in their second year. This would suggest that the larger vehicles are likely to find it less challenging than smaller funds to attract sufficient capital to reach a final close before the average of 18 months for 2014. This is further supported by the fact that 75% of funds in market which are targeting $1bn or more are currently below the average for time spent on the road.