Some records tumbled, but many firms battled away to try to reach their targets while competition on mid-sized funds increased. Robin Marriott reports.
Europe experienced a healthy market for raising capital this year, say experts. Global influences ensured that allocations to real estate as an asset class continued to grow. But within that narrative, there were also some reality checks for fund managers.
Zeynep Fetvaci, head of Europe at JLL’s Funds Advisory group, told PropertyEU in September that although 2019 felt like a record fundraising year in some respects, it also felt like a ‘story of extremes’.
As much as 60% of the capital raised in the first half of the year went to the 10 largest funds. This exacerbated the competition for middle-market funds, she explained. ‘While we believe that the total amount of capital raised will remain robust, we think there has been a material drop in the number of funds getting to their targets; probably 25% fewer than in the prior year,’ she said.
‘The average time in market is increasing once again and according to our most recent estimates more than 50% of funds are not reaching a first close within a calendar year,’ she added. ‘We see a Darwinian survival of the fittest in the middle market which is driving consolidation, a desire to recap to maintain AUMs and a drive to find new ways to support platforms via JVs and SMAs.’
Data provider Preqin analysed funds being raised in all parts of the world and believes around 21% are reaching their target, and 45% are surpassing them. Firms are missing targets in 34% of cases, however. Also, it takes between seven and 24 months to complete a fundraise in most cases, said Preqin.
PropertyEU’s proprietary tracker features firms that are in all the various stages of the capital raising cycle. Cale Street leads our top 10 league, but all eyes are still on The Blackstone Group, whose Blackstone Real Estate Partners Europe VI fund could easily take top spot if it closes before the end of December. That fund is expected to reach around €9.6 bn of equity.
When it does finally get completed, it would become the largest closed-end real estate fund to have been raised specifically for European property. Earlier in the year, Blackstone broke the record for the largest-ever global real estate fund raised, clocking up $20.5 bn (€18.6 bn) of commitments to Blackstone Real Estate Partners IX. This is an extreme example of how investors’ equity is gravitating to fewer managers.
Brexit impact
The beginning of the year introduced an interesting dynamic. The UK was due to leave Europe on 29 March. In anticipation of that, some real estate firms believed there could be blood in the water. Therefore, some lined up to launch UK distressed property funds. However, those were put on ice when Europe agreed to extend the UK’s exit until 31 October.
Oliver Fochler, managing partner and CEO of advisory firm, Stone Mountain Capital, saw another effect too. ‘Normally, the UK would be the most interesting part of a pan-Europe fund, but it is now very challenging to get LPs aligned with the idea of having a UK and continental European property product,’ he said. ‘For one thing, they are concerned with hedging costs linked with the volatile UK currency and Brexit situation.’
