Real estate debt funds boom – study

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Capital raised for European real estate debt funds in the first quarter of the year has already beaten the total raised in 2013, according to Preqin.

With a record amount (53) of debt funds in the market, Preqin said $13.2bn has already been raised in the first three months of this year for the strategy. Overall, last year saw $12.2bn raised for debt funds, when north American investors accounted for 68% of total capital raised.

“Fundraising for debt fund appears to be gaining momentum as investor confidence in the strategy increases,” Preqin said.

For Europe-focused closed-ended funds, the quarter was the most successful since mid-2007, with a record €8.8bn raised.

Blackstone Real Estate Partners made a significant contribution to the quarterly total, with its Europe IV raising €5.1bn and accounting for 58% of the total. In all, nine funds closed in Q1, including Tristan Capital Partners with €950m for its Special Opportunities III fund and M&G Investments’ Debt Fund III at £750m.

North American investors are set to further increase their exposure to Europe this year, with over a third predicted to commit to funds targeting Europe in the next 12 months, up from 17% in Q3 2013. Commitments from Asia-based investors will also rise, up from 39% six months ago to 60%.

“These investors look to take advantage of the wide range of distressed opportunities in the region, and the growing prominence of Europe-focused debt funds,” Preqin said, adding that there are “strong indications” that European funds will continue to attract commitments this year.

Preqin said the last 12 months have seen considerable appetite for Europe-focused funds, with €16.4bn raised, more than double the €6.7bn recorded
in the previous 12 months.

Opportunistic or value-added strategies were most popular in Q1, with both recording 11 closings, followed by debt.

The number of Europe-focused funds has fallen, however. Preqin identified 98 Europe-focused closed-end private real estate funds as of April, a fall from the 107 recorded at the end of 2013. More capital, Preqin said, is being targeted by fewer funds.

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