US - Private equity real estate markets continues to attract long-term investors despite the financial crisis, according to the Preqin 2008 Private Equity Real Estate Review.
Preqin's latest study - questioning 382 key global real estate private equity firms and including the details of over 1,400 funds - found only 2% of investors said they were unlikely to consider investing in the next two years.
At least 67% of investors are still short of their allocation to real estate and are therefore likely to be making new investments, according to Preqin, and 3% are investing opportunistically while 28% are at or close to their target commitment so are investing to maintain their positions.
Ignatius Fogarty, spokesperson for Preqin, said: "Investor appetite for private equity real estate funds still remains at a high level but these investors are becoming much more cautious in terms of where they place their money. Investors prefer to make commitments with firms that have extensive track records and firms that they have already got an existing relationship with."
The average size of private equity real estate funds has grown steadily from $425m (€332.8m) in 2005 to $934m in 2008.
Similarly, fundraising for private equity real estate in 2007 saw 184 funds raise an aggregate $107bn, and 2008 is expected to raise similar figures.
The Preqin review suggested the dynamics of the market have changed, as investors are increasingly looking to larger vehicles and smaller developers are struggling to find backing.
At September 2008, there were 181 funds with a target capital raising of less than $500m while 379 funds sought an aggregate of $228bn, and this led to greater competition between fund managers, according to Preqin.
Analysts suggested, however, new investments are likely to be delayed until the long-term global outlook is more certain, and insist only fund managers with strong investment strategies able to cope with the credit crunch would get more backing from investors.
One of the latest distressed private equity funds to close was Alpha Investment Partners' Alpha Asia Macro Trends Fund, which rasied $1.2bn.
Arkansas Teachers' Retirement System, the $13.4bn public pension fund, recently announced it plans to increase its long-term asset allocation to real estate from 5.5% to 10% as well as increase its allocation to value-added and opportunistic private equity real estate vehicles. (See earlier IPE Real Estate article: Arkansas Teaches takes real estate to 10%)
According to the Prequin Real Estate Online Database, the unlisted real estate market has raised over $700bn in equity from institutional investors, of which private equity real estate funds account for over $500bn.
Preqin 2008 Private Equity Real Estate Review is the third edition of the report and offers analysis and profiles for firms, funds and investors in the private equity real estate market.
If you have any comments you would like to add to this or any other story, contact Poppy Sketchley on + 44 (0)20 7261 4629 or email poppy.sketchley@ipe.com
