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Raising real estate capital in Chicago

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Preqin’s Real Estate Online provides comprehensive information on 76 institutional investors based in Chicago that actively invest in real estate, which collectively represent over USD57 billion invested in the asset class. Nearly a quarter of all institutional real estate investors based in Chicago are foundations (Fig 1), closely followed by private sector pension funds (20 per cent), and endowment plans, public pension funds and wealth managers, which each comprise 13 per cent of the total number. 

Due to the large proportions of smaller investors in terms of assets under management (AUM), such as foundations, endowments and wealth managers, 47 per cent of institutions have AUM of less than $1 billion, and over three-quarters have less than USD5 billion (Fig 2).

The majority of real estate investors are under-allocated to the asset class, 46 per cent hold less than 5 per cent of their AUM in real estate, while 91 per cent have target allocations above 5 per cent, indicating there is potential for significant capital flows to the asset class in the mid-to-long term as these investors look to move closer to their strategic targets.

As Chicago-based institutions are typically smaller in terms of asset bases, it is unsurprising that the large majority gain exposure to the asset class through private real estate funds (Fig 3). Those that invest through private funds have a preference for higher yielding offerings; 69 per cent and 63 per cent invest in opportunistic and value added vehicles respectively. 

In terms of geography, domestic investment is preferred by 95 per cent of Chicago’s private real estate investor population, above global- (37 per cent) and Europe-focused funds (34 per cent). Interestingly, Chicago-based investors are more likely to commit to less experienced fund managers; 43 per cent will invest or are considering investing with first-time fund managers, above the US average of 31 per cent. Separate accounts and joint ventures require large commitment sizes and sizeable internal resources, and are typically targeted by larger institutions. As investors based in Chicago are usually of a smaller size, only 23 per cent and 17 per cent invest through these structures, well below the corresponding proportions for investors across the US as a whole.

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