Capital-raising for funds is extremely difficult. That said, in the first half of 2009 a number of funds targeting European real estate opportunities closed. However, capital targets have had to be lowered amid investor uncertainty. Richard Lowe reports

Capital-raising for European non-listed real estate funds dropped by 46% in 2008 on the previous year's figure, according to INREV's latest capital-raising survey. "This year's survey clearly shows the focus in 2008 switched away from capital-raising as fund managers and investors sought to resolve issues in existing investments," says Georg Allendorf, managing director of RREEF Spezial Invest and vice-chairman of INREV.

This conclusion comes as no surprise, since it is fairly evident that investors have largely retrenched. INREV's figures also showed that most of the capital raised (61%) in 2008 was obtained during the first half of the year. Again, that is no surprise, given the tumultuous financial events of last September.

Perhaps what is surprising is the emergence of a steady trickle of real estate funds launching and, in some cases, closing in recent weeks and months. That said, most of these funds have had to close at lower levels and those launching will no doubt be moderating their expectations for investor appetite.

The announcement in February that Benson Elliot Capital Management had raised €510m very quickly for its second pan-European real estate fund, BEREP III, was a reassuring sign in a stagnant capital-raising environment.

Since then, a number of pan-European property funds have closed. These include Catalyst Capital's latest vehicle, which raised €228.5m from major institutional investors and is intending to invest opportunistically in the UK, France, Germany, Italy, Belgium and some central European markets. The fund, which launched in October 2007, attracted capital commitments from North American and European pension funds, endowments, foundations and charitable trusts.

Natixis Capital Partners also raised €420m for its third European fund. This will focus on investing in corporate property transactions in Germany, Italy, France, Spain and Benelux. The vehicle opened in May 2008, closed at the start of 2009 and has already invested approximately a third of its equity. Institutional investors committed to the fund include pension funds, insurance companies and banks from the UK, France, Germany, the Netherlands and Denmark.

Blackstone has reportedly raised €3.1bn for its third European vehicle and plans to close the fund in the spring. The Blackstone Real Estate Partners III has attracted commitments from 69 investors and is hoping to raise €3.5bn before closing.

Forum Partners has raised €443m of capital commitments for its Forum European Realty Income III, focused on European private and listed property companies. Equity was raised from institutional investors in the US and Europe.

Heitman has held the first closing of its fourth European value-added fund, raising €380m of capital commitments. The fund will acquire portfolios of debt investments and direct property, including retail, residential, office and logistics throughout Europe.

Private equity firm Palmer Capital Partners has joined forces with property services firm GVA Grimley to launch a fund targeting £75m (€81m) of capital for a new fund targeting small UK deals with distressed sellers and banks. UK property company Sovereign Land and Strutt & Parker Real Estate Financial Services have also launched a joint venture UK-focused fund, this time specialising in opportunities in the retail sector. The vehicle is targeting £300m in capital commitments.

The latest quarterly study of private equity-style real estate funds by data and analysis providers Preqin confirms the aforementioned trend that today's funds on the road are having to settle for lower levels of capital. The survey shows that only 22 funds managed to hold a final close in the first quarter of this year, raising a total of $13bn (€9.79bn) - the lowest level seen since the fourth quarter of 2004.

Furthermore, there have already been 14 confirmed cases of fundraisings being abandoned, against 17 in 2008 and 12 in 2007, according to the report. The number of property funds ‘on the road' actually increased in the first three months of this year, according to Preqin, but the sum of money now being raised by individual funds is smaller because so many investment houses are chasing the same investors.

Speaking at INREV's annual conference in Athens, Chris Morrish, managing director at Singapore's Government Investment Corporation (GIC) said the fact that a large proportion of investors were de-leveraging meant that, regardless of the availability of debt, there would be less equity capital coming into the market as people might have expected.

"That doesn't mean to say there is not going to be a demand for real estate," he said. "But perhaps it is not going to be so easy for some of the big investment fund managers to raise the huge jumbo funds that they've raised in the past."

One fund that closed without reaching its capital-raising target was the latest US property vehicle from TriCon Capital, while Morgan Stanley's latest global property fund is expected to close below its $1bn target.

David Berman, president of TriCon, said the situation demonstrated how capital-raising has changed over the past 18 months, when the company first started to talking to investors about investing in its tenth commingled vehicle.

"We felt it was best to halt the capital-raising now and start to put the capital to work," he said. "There are very few pension funds in the US that have capital available to invest at this time."

Another piece of research from New York-based fund of funds manager Clerestory Capital Partners confirmed a similar picture where opportunistic funds were concerned. According to the firm, investors have pulled back sharply on new capital commitments to such vehicles since last September.

Clerestory co-founder Tommy Brown said: "Opportunistic fund managers are having
to downsize, delay or, in some cases, withdraw product offerings, as investors seem
to be keeping their powder dry to support their existing fund investments with equity if it's needed."

The day after Clerestory announced these findings, Brown moderated a panel debate at IMN's European Distressed Real Estate conference in London and asked: how much capital is expected to be raised in the next two years?

"A lot less than was raised in the last two years. I think most investors are looking at their portfolios," said Peter Lewis, senior investment director at Boston-based insurer Liberty Mutual Group. "Cash is being conserved," he said.

Meanwhile, Derek Williams, a director at Russell Investments multi-manager said the big issue for him was the difficulty in the current market environment in achieving a first close to give investors the assurance that managers will be able to attract further investors for second and third fund closures. Williams described it as a "stalemate era".

Speaking to IPE Real Estate, Jeremy Plummer, managing director at CB Richard Ellis Investors' multi-manager arm, raised the same issue. "There isn't a huge amount of activity in terms of new funds succeeding in actually having a closing," he said.

"One of the issues for us is that if we find something we actually like there have to be enough investors to get a critical mass of capital."