Closed-end private real estate debt funds raised a total of $20 bn (€17 bn) in capital worldwide in 2014, higher than in any other previous year, according to research by fund data provider Preqin.
Closed-end private real estate debt funds raised a total of $20 bn (€17 bn) in capital worldwide in 2014, higher than in any other previous year, according to research by fund data provider Preqin.
The figure marks an increase of 25% year-on-year and was raised by a total of 26 vehicles. A year earlier, 29 funds raised $16 bn for real estate debt funds globally.
North America accounted for the bulk of last year’s figure, or $11.5 bn raised by 12 funds, followed by Europe with nine vehicles raising a total $8 bn. Asia trailed with five funds raising just $0.8 bn.
‘The debt fund market has seen significant growth in recent years,’ noted Andrew Moylan, head of real assets products. ‘While the availability of bank financing for real estate investments has substantially improved in recent years, there remains demand for alternative lenders, and the strong fundraising for real estate debt funds suggests that there also remains significant institutional demand for exposure to real estate debt investments.’
Aggregate capital raised across all real estate strategies worldwide reached $90 bn last year, just below the $92 bn raised in 2013, but Moylan expects this figure to increase by 10-20% as more information becomes available. Funds focusing on Europe raised 131% more capital in 2014 than in 2013, or $36 bn compared to $15 bn the previous year.
Well over a third – or 39% of capital raised in 2014 - has a primary focus on Europe, compared to 17% of capital in 2013. Blackstone’s European fund – BREPE IV – was the largest fund closed globally in 2014 with €6.6 bn. By contrast, North America-focused fundraising witnessed a notable decline year-on-year with these funds raising $44 bn in 2014, compared to $63 bn in 2013.
Blackstone also generated a milestone for Asia in 2014 with its $5 bn Blackstone Real Estate Partners Asia fund, the largest Asia-focused vehicle ever closed.
However, the total number of funds that reached a final close has seen a notable drop-off, with 177 holding a final close in 2014 compared to 239 in 2013. Capital is becoming increasingly concentrated among a handful of the larger players as investors seek out the more experienced managers with long track records, Moylan said. ‘Fundraising going forward is expected to remain highly competitive, with the investor base becoming more selective about the managers they choose to invest with.’
Another record was broken in 2014 in terms of the average size of real estate funds: $528 mln for funds closed in 2014 compared to $417 mln in 2013. This is the highest level ever, Preqin said. Almost half – or 48% - of funds closed in 2014 exceeded their target size, compared to 44% of funds that closed in 2013. Funds that closed in 2014 took an average of 18 months to reach a final close, the same as in the past three years. This demonstrates that fundraising remains a long process for many firms, Moylan
said.
Overall, however, prospects for the industry remain good, he added. ‘Across the entire real estate fundraising market, it is evident that investors are still putting considerable sums of capital to work across the asset class. Total fundraising for 2014 is set to exceed the amount raised in 2013, and we anticipate 2015 to also be strong.’