West Coast-Focused Private Real Estate Fundraising – December 2014

by Olivia Harmsworth

  • 05 Dec 2014
  • RE

Recent years have seen a clear upward trend in fund managers successfully attracting more capital for West Coast-focused vehicles. Aggregate capital raised by these funds is increasing year-on-year and has risen from $0.8bn, raised by 11 funds in 2010, to $2.7bn, raised by 18 funds in 2013. As can be seen in the chart below, 2014 has so far seen 11 West Coast-focused private real estate funds reach a final close, having raised an aggregate $1.6bn in capital commitments. 

Encouragingly, over the last two years, West Coast-focused funds have been increasingly meeting or exceeding their target capital size. For funds closed between 2011 and 2012, a notable 62% fell short of their fundraising target; in comparison, funds closed between 2013 and 2014 appear to have had more success, with 43% reaching their target and 24% exceeding target capital commitments.

Fund managers and investors have a clear preference for higher-risk strategies when investing in West Coast real estate, with value added and opportunistic funds accounting for 75% of funds closed since 2012. In particular, value added funds have raised the most capital, attracting $4bn, with debt funds also raising a significant amount of capital ($1bn), raised from four funds reaching a final close. Lower-risk core and core-plus funds have raised the least amount of capital, with only $0.2bn raised from five funds closing since 2012.

West Coast-focused funds are becoming increasingly prominent in terms of the proportion of overall US-focused capital they represent. From 2010 to 2014 so far, there is a clear upward trend in the amount of aggregate US-focused capital accounted for by West Coast-focused funds, indicating that investors are increasingly drawn to the region and fund managers raising funds focusing on the West Coast are attracting increasing amounts of capital. West Coast-focused funds have increased from representing just 2% of aggregate US regional-focused capital in 2010 to 41% in 2014 so far. However, vehicles focusing on the West Coast are taking longer to reach a final close, with funds closed between 2008 and 2010 spending an average of 14 months on the road, compared to an average of 19 months in market for funds which have closed in 2014 so far.

There has been a shift from funds making diversified property investments to sector-specific investments, such as residential, industrial, office and retail. Residential funds in particular have raised a significant amount of capital since 2012, with 24 such funds closing, raising an aggregate $2.1bn. Funds investing in a diversified range of properties, however, still account for most of the capital raised, with 12 vehicles raising $3.4bn. This being said, the proportion of capital accounted for by diversified funds has fallen from 66% for funds closed between 2007 and 2011 to 54% for funds closed between 2012 and 2014 so far, with residential-focused funds correspondingly increasing their proportion of capital from 26% to 34%.

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