Value Added Private Equity Real Estate Fundraising

by Andrew Moylan

  • 14 May 2010
  • RE

Value added funds invest in moderate to high-risk real estate that provides moderate to high returns. Investments are typically in lower quality buildings that require enhancement to upgrade them to class A buildings. Investments usually utilize between 50% and 70% leverage and will expect an internal rate of return (IRR) in the low-mid teens.

Fundraising for value added vehicles peaked in 2007 when 115 funds raised $49 billion. The following year was also very successful in terms of value added fundraising, with 105 funds raising $43 billion. The difficult fundraising environment led to just 54 funds closing in 2009 with commitments of $17 billion; the lowest total since 2004. The decline in 2009 fundraising is not exclusive to value added vehicles and is indicative of the private real estate market as a whole, as fund managers have struggled to gain commitments from investors.

There are currently 148 value added funds in market seeking to raise $46 billion. Of the 148 vehicles, 62% have a primary focus on investments in North America. Europe-focused funds account for 28% of vehicles in market, while the remaining 10% of funds primarily target Asia and Rest of World markets. North American dominance of the value added market is further revealed by the fact that the top ten largest firms according to capital raised for value added funds are all headquartered in the US. Beacon Capital Partners has raised the most capital for value added vehicles over the past ten years, gathering commitments of $10.5 billion. The firm raised $4 billion for Beacon Capital Strategic Partners V, making it the thirteenth largest private equity real estate fund of all time.

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