With large investors focusing on joint ventures, there has yet to be any real resurgence in the capital-raising market, although progress is being made by a select few managers. Richard Lowe reports
After a difficult 2010, optimism about the capital-raising market is on the increase. The latest Investment Intentions survey from the European Association for Investors in Non-listed Real Estate Vehicles (INREV) suggests there is a perceived improvement in the ability to raise capital from both sides of the equation, with 50% of investors and 58% of fund managers rating this as less of a problem than in previous years.
There are signs that the capital-raising market is beginning to pick up, but the funds at the higher-risk end of the spectrum are suffering as a whole. Latest figures from data analysts Preqin show that 2010 was the lowest 12-month period on record for capital raising since 2003.
That said, $35.8bn (€26.5bn) was raised globally by 89 separate funds on a global basis. The sector may be suffering as a whole, but a select number of managers are achieving success. These include a handful of global opportunistic managers that had success in raising capital in 2010, including Morgan Stanley Real Estate, Fortress Investment Group, Beacon Capital Partners, Starwood Capital Group, Brockton Capital and Rockspring Property Investment Managers.
Brookfield Asset Management was by far the most successful raiser of capital in this category, having secured $5.5bn in capital commitments for its Real Estate Turnaround Program. The Brookfield strategy is to invest opportunistically in the US markets by investing in underperforming assets or under-valued companies, and embarking on redevelopments, active asset management and financial restructuring. It attracted capital commitments from some of the world's largest investors, including China Investment Corporation (CIC) and Australia's Future Fund, while the Townsend Group pooled capital from a number of its pension fund clients in the US and Europe to invest in the Brookfield strategy.
One of the investors in the Townsend Group consortium was ATP, Denmark's largest pension fund. The contribution was the last investment from its original real estate funds programme started in 2006. It has since allocated €700m in fresh capital to invest in real estate funds in the US and Europe over the next three years.
ATP is open to investing joint ventures and club deals as well as traditional commingled funds. The market certainly continues to be dominated by the former, as large investors look to take advantage of their size and benefit from greater control. Dutch pension fund investors APG and PGGM have been busy in this space. The latter has committed £220m (€260m) in a joint venture with Lend Lease targeting social infrastructure in the UK. It has also signed up to a $75m investment in a joint venture between UBS Global Asset Management and Gemdale Corporation to invest in real estate in China. APG, meanwhile, has teamed up with the Canadian Pension Plan Investment Board (CPPIB) to acquire real estate assets worth £870.5m in London's 2012 Olympics site.
Canadian pension funds have been a notable presence in London, looking to gain exposure to the market through joint ventures. The Healthcare of Ontario Pension Plan (HOOPP) made its first direct real estate investment outside Canada when it acquired a 50% stake in the Crown Estate's St James's Gateway development in London. Ontario Municipal Employees Retirement System (OMERS) and Ontario Teachers' Pension Plan also acquired the high-speed rail network connecting London to the Channel Tunnel.
Meanwhile, the California State Teachers' Retirement System (CalSTRS) has entered into a joint venture with the Panattoni Development Group to invest in industrial and commercial real estate in the US and Canada. The pension fund also entered into two joint ventures in the US residential sector, with IHP Capital Partners and ResCal Investments, respectively.
Specialist logistics developer Helios Europe entered into a €1bn joint venture with Eindhoven-based developer and investor HG Property Group. Helios Europe is backed by a number of UK pension funds via specialist fund manager Mansford Real Estate.
But the past few months have not been completely dominated by joint venture deals. AXA Real Estate Investment Managers has had success in raising capital for two new funds. It has so far raised €337.5m in commitments for its pan-European development strategy after two closings, and hopes to raise €600m in total. The commitments have been secured from a number of pension funds, insurance companies and third-party funds from the UK, Netherlands, Germany, Finland and France. The fund manager also raised €350m for its new pan-European debt fund, in addition to €1.15bn in existing commitments from insurance companies.
Pradera UK secured £75m from a European pension fund to invest in UK retail parks and is hoping to raise a further £175m for the same strategy from several other investors. The company has capped its equity raising target at £250m so that it can deploy capital decisively, with a view to launching follow-on funds in the future. This is an example of the rise of the ‘club fund', which is no different in structure to standard commingled funds but has a smaller number of investors.
St Bride's Strategic Advisers, recently established by former ING Real Estate Investment Management chief executive Robert Houston, is also looking to launch a series of club funds. The firm is raising capital for two parallel funds focusing on London offices and London industrial assets, respectively. Houston said it made sense to launch a series of vintages rather than a large fund. "The advantage of this is it permits us to price and then re-price each vintage depending on market circumstances and market pricing, and also allows investors to come in or not as the case may be in each vintage," he said.
Investment managers are still looking to benefit from investor interest in the UK real estate market, including Citigroup, which has raised £330m for a new UK real estate fund managed by Threadneedle. But a nascent resurgence of interest in central and eastern European real estate markets, particularly Poland, has prompted Baltic market specialist BPT to launch a new fund. The developer and fund manager have raised an initial volume of capital from Nordic and Swiss investors for its BPT Baltic Opportunity Fund and is aiming to raise a total of €100m this year.