Thirty-one private real estate funds closed in Q3 2014, raising an aggregate $18bn – the lowest quarterly amount raised since Q1 2013. As was the case in Q1 2014, Europe-focused funds collected the most capital in Q3 2014, with seven Europe-focused vehicles securing $10.1bn. This was largely accounted for by the $7.2bn garnered by Lone Star Fund IX, with 50% of this capital focusing on Europe; the fund is the largest to close so far in 2014. The 16 North America-focused vehicles closed in Q3 secured only $6.5bn, the smallest quarterly amount raised for the region since Q1 2013, with Asia-focused funds securing $1.5bn through six funds holding a final close. The remaining two funds that closed in Q3 are targeting regions outside of North America, Europe and Asia, and raised $64.5mn.
Despite the slight decline in capital raised in the last two quarters, fundraising remains strong in 2014 as a whole, with the $63bn raised in the first three quarters of the year surpassing the $56bn raised in the same period last year. However, capital is becoming increasingly concentrated among fewer managers, with only 122 funds closing during the first three quarters of 2014, much lower than the 166 vehicles that closed between Q1 and Q3 2013. The proportion of funds that met or exceeded their targets is higher for funds that closed in 2013 and so far in 2014, with 59% and 55% of funds reaching or raising above their targets respectively. The corresponding figures for funds closing in 2010, 2011 and 2012 are 51%, 52% and 48% respectively.
Strong fundraising over the last two years has also led to an increase in uncalled capital available to real estate fund managers, with private real estate funds having a record level of dry powder at their disposal. Closed-end private real estate funds have $220bn in dry powder available to invest, up from $186bn in December 2013, representing the highest amount on record. The majority of capital is accounted for by North America-focused funds, with $113bn of dry powder focused on the region. Europe-focused funds have $66bn of dry powder, with Asia-focused funds and funds focusing outside of these three regions having $32bn and $9bn in uncalled capital respectively.
Fund managers are also largely confident they can put this capital to work, with the Preqin Special Report: Real Estate Fund Manager Outlook finding that 63% of managers expect to invest more capital in the coming 12 months than they did in the past year. However, with a wall of capital chasing deals and pricing increasing, firms will have to work hard to find value in an increasingly competitive marketplace.