The aggregate assets under management of the private real estate industry in the US (Preqin defines a firm’s assets under management as the sum of its dry powder and unrealized value of portfolio assets) have reached an all-time high as of December 2012, with $335bn either invested in real estate or held as dry powder. This represents a 57% increase on the $214bn held in assets under management by US-focused private real estate funds as of December 2009.
The challenging fundraising environment experienced as a result of the financial crisis saw dry powder in 2010 decrease for the first time since 2002, to $80bn. As of December 2012 dry powder stood at $79bn, its lowest point since 2006, but the increase in the rate of fundraising in 2013 has seen this grow to $98bn as of August 2013. The growth in industry assets under management can mainly be attributed to the large amount of unrealized value of assets in firms’ portfolios, as a result of increasing property values and investment activity from fund managers. From January 2010 to December 2012, private real estate firms put a significant amount of capital to work, investing a total of $144bn.
2012 in particular saw private real estate fund managers scale up activity in the US, both in terms of acquisitions and dispositions. Firms are putting their available dry powder to work, with the amount of capital invested in 2012 increasing to $67bn, reaching its highest point since the financial crisis. Additionally, managers are also selling more assets and the amount of capital distributed to investors has increased year-on-year since 2010; $63bn was distributed in 2011 and 2012, compared with just $29bn in 2009 and 2010. This may have a positive impact on the fundraising market, with institutional investors able to reinvest these distributions and put more capital back to work in real estate.
Preqin data reveals that vintage 2007 funds still have a large amount of aggregate unrealized value, with $55bn currently still invested in real estate. The strong fundraising environment in 2006 and 2007 meant that a large amount of capital was raised and invested, but as yet the majority of investments have not been realized. The assets under management for vintage 2011 US-focused funds is significantly higher than for vintage 2010 funds. For vintage 2012 funds, assets under management are at a much lower $28bn, with a large proportion of capital called still to be put to work.
Part II of this blog will examine dry powder by strategy, fund manager location and sector focus.