Distressed and debt real estate vehicles are becoming an increasingly prominent part of the private real estate sector. The economic downturn has resulted in a decrease in the total number of funds closing and the total capital being raised by all private real estate funds, including distressed and debt vehicles. However, distressed and debt funds are increasingly beginning to comprise a larger market share of the private real estate fund industry. In 2008, 28% of capital raised by private real estate vehicles was by funds including distressed and/or debt investments as part of their overall strategies; in 2009 this grew in to 35%. The increase in market share of distressed and debt funds is indicative of the growing importance of these vehicles for the private real estate market as a whole.
The best year for real estate distressed and debt fundraising came in 2008, when 49 funds raised an aggregate $39 billion. The economic downturn, which contributed to the fall in fundraising for all private real estate vehicles, also had an adverse effect on distressed and debt fundraising in 2009, with 34 funds raising an aggregate $16 billion; still the third most successful year on record.
There are currently 161 distressed and debt real estate vehicles in market targeting an aggregate $76 billion in commitments. The average distressed and debt real estate fund in market is targeting over $470 million. The majority of distressed and debt funds have a primary focus on investments in North America, with such funds constituting 74% of funds on the road. European-focused funds account for 17% of funds in market, with Asia and Rest of World the primary focus for the remaining 9% of vehicles.
The 2010 Preqin Real Estate Debt and Distressed Review contains information on over 200 debt and distressed real estate fund managers and more than 170 debt and distressed real estate investors.