EUROPE - Investors are moving up the risk curve to opportunistic and value-added real estate - but they are only willing to commit capital to well-established fund managers with a strong track record.
According to a report by consultancy Swisslake on real estate private equity in the first half of this year, 142 new funds are targeting $69bn (€48.5bn) - an increase of 42% compared with the same period last year.
Swisslake CIO Volker Wiederrich described the findings as "a sigh of relief for the industry".
Asked whether investors were as confident as fund managers, he told IPE Real Estate:
"Some are really confident because they've had strong relationships with those fund managers in the past. Now, before they launch a fund, fund managers know who the seed investors are."
The investor shift toward more complex properties, value-added and opportunistic investments - which demand higher levels of expertise - had likewise focused attention on fund managers.
"Investors are more focused on due diligence," said Wiederrich. "They don't write a cheque within a couple of weeks any more. Investors should act prudently and go into detail with fund managers. Have they always done in the past? I doubt it."
Buoyant investor confidence was also the rationale for the return of megafunds.
Although demand for specialised strategies remains strong, accounting for 50% of the funds launched, Wiederrich said investors were also looking for diversification via large funds.
Whereas over the past two years investors had been reluctant to invest in diversified blind pools, over the past six months, diversification has become "widely accepted".
"Investors wanted managers to focus on what they do best, and fund managers saw their best chance of raising equity in doing what they'd already done before," Wiederrich said.
"Times have changed. Now the market is too small to deploy the capital investors want to deploy."
Yet the launch of funds with an equity target of less than $250m - comprising first-time funds, those managed by smaller managers and specific strategies with limited deal-flow - suggest continued caution on the part of some investors.
According to the report, this segment will lose a percentage of its appeal to funds sized between $250m and $500m.
