Real Estate Funds Break Records in Q1 2017

Managing Director
Real Estate Funds Break Records in Q1 2017
Private real estate funds keep multiplying with 554 funds in the market at the beginning of Q2 2017 competing for a total capital commitment of $189 billion, according to Preqin’s quarterly real estate update released in April. This represents a 13% increase in the number of funds raising from one year ago and a 24% increase from Q1 2013.

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60% of these funds have already held at least one close, raising $70 billion.

Value Added Real Estate Funds Continue Attracting Most Interest

Value added investments account for 35% of the total funds in the market. Opportunistic lags slightly behind, comprising 25% of the total, but it’s a strategy favored by the top five largest funds in the market, which includes two North America-focused funds.
The top 2 North America-focused private real estate funds in the market:

  • Starwood Global Opportunity Fund XI – $6B target (debt, distressed, opportunistic, value added. This will be the firm’s biggest fund to date, and the largest currently in North America. The fund will invest predominantly in North America and Europe.
  • Carlyle Realty Partners VIII – $5B target (opportunistic). This is the eighth investment pool for Carlyle, which seeks to raise $100B over the next four years.

Final Closings of Real Estate Funds Drop by Nearly 50%

However, despite the large number of funds in the market, at the end of Q1 2017, only 38 funds had reached their final close, raising just $16B, and marking the lowest amount of capital raised in a quarter since Q1 2013.

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Geographically, North America remains a primary target for fund allocation. Twenty-seven closed funds, totaling $12.2B, were concentrated in North America, including four of the largest.
The four largest North America-focused private real east funds closed:

Mirroring the focus of current deals in the market, the majority of closed deals were value added, representing 44% of total capital raised, followed by opportunistic, comprising 26%.
Institutional investors, however, are drawn to core funds versus value added as they seek to invest more capital in fewer funds.

5 Big Private-Equity Single-Asset Deals Close

Overall, 568 private-equity deals totaling $38B closed, a 33% decrease from the previous quarter.

Despite this decline, five significant single-asset deals were completed, which total $3.6B. Two are located in North America.

The two largest North America private equity real estate closings:

Property Type Value Seller Buyer
Ballantyne Corporate Park
Charlotte, NC
Office $1B Bissell Companies Northwood Investors
One Vanderbilt
New York, NY
Mixed Use $525M SL Green Realty Hines, National Pension Service

Keeping with recent trends, office, retail and residential product are the most highly targeted property types with office comprising 39% of private equity deals between Q1 2016 and Q1 2017.

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Dry Powder Levels Still Soaring

The amount of available cash reserves reached a record-breaking $247B as of March 2017 – a $10B increase from December 2016 and an 82% increase from December 2012.
North America-focused funds are experiencing growth in total dry powder with $142B, up from $133B in December 2016.
In terms of strategy, the greatest amount of dry powder ($103B) is concentrated on opportunistic funds, while the greatest growth is in value added and debt funds.

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