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More Institutions Plan to Invest in Private Real Estate Funds

08/16/2012 | By Carisa Chappell

More Institutions Plan to Invest in Private Real Estate Funds

While overall interest remains low, a new report from alternative asset research firm Preqin indicates that institutional investors' appetite for private equity real estate is growing.

Major investors are expressing greater interest in investing in private funds and increasing the amounts of such investments, according to data released Aug. 15 by Preqin.

The firm's latest survey of institutional investors found that 48 percent of respondents plan to commit capital to private real estate funds in the next 12 months, an increase from the 36 percent of respondents who felt that way in January 2012.

Additionally, 37 percent of investors noted that they would commit more capital toward private real estate funds in the next 12 months than they have in the last 12 months. That number was lower in January 2012, when 26 percent of investors stated that they would commit more capital than they had in 2011.

However, investors' persistent concerns about the current economic climate are apparently causing them to take a more opportunistic approach to their real estate investments. In the next 12 months, 36 percent of investors surveyed don't anticipate making capital commitments and 17 percent remain undecided, a telling sign, according to Andrew Moylan, Preqin's manager of real estate data.

"With 52 percent of investors not planning investments or adopting a wait-and-see policy, it is clear that fundraising for private real estate funds is likely to remain very challenging in the coming months," Moylan explained. He did add that the current trends could lead to increasing momentum in the private real estate fundraising market.

Investors' reported intentions towards future commitments to private real estate funds varied by assets under management. The higher the level of assets under management, the more likely they were to have an interest in investing.

Of the investors with assets under management of $10 billion or more, 70 percent said they were likely to invest in the next 12 months, compared to 26 percent of investors with less than $1 billion in assets under management. The report noted that smaller institutions make investments less frequently and may be more likely to halt investments in uncertain market conditions.

Despite the survey's positive signals, Moylan pointed out that 64 percent of respondents said they have been satisfied with how their real estate investments performed.

"The fact that more than a quarter of investors are disappointed with returns, however, indicates there is more work for fund managers to do in regaining investor confidence enough to improve fundraising conditions," Moylan said.