Institutional investors have been cautious over the summer in backing investment funds until the Covid-19 crisis settles.
Is the private equity market shut down?
That was the pertinent question posed by John Barakat to some of Europe’s senior real estate figures during a webinar organised by the ULI in July.
Just the need to ask such a question by M&G Investments’ head of real estate finance demonstrated the severity of the Covid-19 lockdown.
Without face-to-face possibilities over the summer, could anyone secure commitments from institutional investors to real estate funds unless a previous relationship existed?
Erik Sonden. Paris-based senior advisor at DTZ Investors, told M&G’s Barakat: ‘We find all our existing clients want to put off any decision until September.’
From Zurich, Richard Johnson, MD and head of international capital markets at Signa Financial Services, said: ‘I think people are willing to have a conversation but no action this side of the summer.’
Roger Orf, Europe head of real estate at Apollo Global Management, added: ‘We have had a first close in North America recently during Covid-19. But I think in the main, investors are a bit like us. They are open to new opportunities, but they have really switched from growth opportunities to wondering what the distressed market is going to look like, which makes them a little bit paralysed in terms of making commitments, so it has been quite slow of late.’
The need and desire to raise equity for real estate funds across Europe is a constant one, and the lifeblood for many investment managers, but they are feeling the pinch. Even companies such as Hines with recent fundraising success and strong global relationships feel they have lost months of momentum. Paul While, fund manager of Hines European Value (HEVF), fund told PropertyEU he felt it could have cost the firm six to nine months of delay, although this has not dented the firm’s ability to source off-market deals via its local networks.
PropertyEU spoke with one UK-facing opportunistic real estate fund manager who preferred to remain anonymous. The manager said there was no way the firm would consider just accepting ending fundraising below the stated target. But with nine months written off starting from March, a final close looked more likely to be for summer 2021 – a year behind schedule.
If that is a common response from investors, then September ought to be the month when some firms begin to launch new products in the hope of catching a thaw among investors starting in Q4.
Unsurprisingly, data provider Preqin has reported how activity in Q2 declined significantly. But despite fewer funds closing in Q2, value add and opportunistic funds attracted more capital than in Q1. Repricing of assets could attract a wave of new commitments, Preqin said.
According to Lazard’s bulletin, institutional investors continued to carry out due diligence and commit to funds throughout May, albeit many adapted their investment approach. Lazard gathered feedback from over 70 real estate limited partners throughout May and reported that after capitalising on a window of opportunity in the public markets in April, they retrenched to existing private capital relationships, looking to either increase exposure to existing fund managers or building upon relationships which had been established prior to the onset of the pandemic.
The advisory firm also said there was an acceleration of existing real estate sector shifts: increased focus on logistics, multifamily/residential for rent and data centres; and continued interest in distressed and opportunistic situations, with distressed credit and hospitality opportunities frequently cited as of interest.
Indeed, Apollo’s Orf seemed to endorse this viewpoint, noting that in the US, the firm had been able to raise billions of dollars for credit strategies, including in real estate.
Over the summer, final closes of European real estate funds have been held, with Angelo Gordon and Patrizia as cases in point. EQT is very close to a final close too. However, the majority of the equity was raised well before March when the crisis erupted.
