The combined capital-raising target of Europe-focused real estate debt funds has grown by more than 300 percent in the past year, according to a May 17 report from alternative asset research firm Preqin.
According to Preqin, as real estate financing becomes more competitive, a growing number of fund managers are turning to debt offerings. There are currently 19 Europe-focused debt funds in the market targeting aggregate commitments of approximately $12.8 billion Euros. That compares to seven funds with an aggregate target of approximately $2.9 billion in May 2012.
Debt funds account for 26 percent of the approximately $48.8 billion Euros that is being targeted to be raised by the 117 Europe-focused funds in the market.
“With real estate financing from traditional lenders now harder to secure, an increasing number of Europe-focused fund managers are launching debt offerings to take advantage of the opportunities in the commercial real estate lending market,” said Andrew Moylan, head of real assets products at Preqin. He added that both new managers and established firms are forming new debt platforms.
The Preqin report noted that institutional investors are becoming more interested in the value that real estate debt can add to their existing real estate portfolio with a lower level of risk than equity investments in real estate. Of the European investors beginning to search for new funds in the first quarter of 2013, Preqin found that 27 percent were targeting real estate debt funds, compared to 8 percent that were targeting debt funds in the first quarter of 2012.
Overall, more institutional investors worldwide in 2013 are planning to ramp up their commitment to funds with debt strategies, according to a survey by Preqin. In December 2012, 34 percent of real estate investors surveyed said they planned to target debt funds in the next 12 months, up from 8 percent who responded that way a year earlier.
“Despite this increased investor appetite, the fundraising market for debt funds is very challenging, and with more firms entering the market, this is likely to remain the case in the coming months,” Moylan said.