Closed-end private real estate debt funds raised a total of USD20bn in capital in 2014, higher than in any other previous year. Andrew Moylan, Head of Real Assets Products at Preqin, comments on the state of private real estate fundraising heading into 2015:
Across the entire real estate fundraising market, it is evident that investors are still putting considerable sums of capital to work across the asset class. Aggregate capital raised across all real estate strategies worldwide reached USD90bn, just below the USD92bn raised in 2013, but is expected to increase by 10% to 20% as more information becomes available. However, the total number of funds that reached a final close has seen a notable drop-off, with 177 holding a final close in 2014 compared to 239 in 2013, as capital becomes ever more concentrated among a handful of the larger players.
This does, of course, mean that the average real estate fund size has increased substantially; up approximately USD110mn from 2013 and reaching its highest ever level at USD528mn. Moreover, almost half (48%) of funds closed in 2014 exceeded their target size, compared to 44% of funds that closed in 2013.
It was a strong year for Europe, as funds focusing on the region raised 131% more capital in 2014 than in 2013, USD36bn compared to USD15bn. Thirty-nine percent of capital raised in 2014 has a primary focus on Europe, up from 17% of capital in the previous year. In contrast, North America-focused fundraising witnessed a notable decline – these funds raised USD44bn in 2014, compared to USD63bn in 2013. Elsewhere, the largest ever Asia-focused fund, Blackstone Real Estate Partners Asia, closed in 2014 at USD5bn.
Closed-end private real estate funds that focus on debt investments had a successful fundraising year, raising the largest annual amount of capital ever. A total of 26 debt funds raised a combined USD20bn, up from 29 funds raising USD16bn in 2013.
The debt fund market has seen significant growth in recent years. 2014 saw a record amount of capital raised for funds targeting real estate debt opportunities, and is up 30% on the previous year. While the availability of bank financing for real estate investments has substantially improved in recent years, there remains demand for alternative lenders, and the strong fundraising for real estate debt funds suggests that there also remains significant institutional demand for exposure to real estate debt investments.
Total fundraising for 2014 is set to exceed the amount raised in 2013, and we anticipate 2015 to also be strong. The number of funds receiving capital has taken a notable drop, however, as investors seek out the more experienced managers with long track records. Fundraising going forward is expected to remain highly competitive, with the investor base becoming more selective about the managers they choose to invest with.
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