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Private Equity Real Estate Fundraising Continues Decline

07/03/2012 | By Carisa Chappell

Private real estate fundraising continues to sink, according to data released July 3 from alternative asset research firm Preqin.

The firm noted that the level of fundraising activity in the second quarter of 2012 fell below all quarters in 2011 and the first quarter of 2012.
Private equity funds raised $7.5 billion last, whereas funds raised $raised $10.8 billion in the first quarter of 2012 and $15.9 billion in the final quarter of 2011.

"It remains extremely tough for fund managers to hold final closes as a result of the level of competition and the significant number of institutional investors which are not actively investing in new private real estate funds," said Andrew Moylan, Preqin's manager of real estate data.

Preqin's data revealed that there are currently 453 funds in the market with aggregate commitments of $159 billion. Moylan said the aggregate target of funds "on the road"—those open for fundraising—fell by $7 billion during the second quarter of 2012.

Additionally, the fundraising market remains competitive, according to Moylan. He noted that with 453 funds on the road, managers seeking capital are struggling to stand out from the crowd. Moylan said he anticipates that the harsh fundraising environment will continue throughout the remainder of the year.

"Some managers have had considerable success in the quarter, but for many others fundraising has remained challenging, and looks set to continue to be tough for the second half of 2012," he said.

Funds with a primary focus on North America raised the bulk of the capital in the first quarter of 2012. Seventeen funds received aggregate commitments of $4.7 billion, while five Europe-focused funds raised $1.8 billion. Four Asia-focused funds raised $900 million.

Additionally, 32 funds held interim closes in which the accounting records to determine the fund's position are closed prior to that fund's final closing.

The funds that closed in the first half of 2012 also spent more time on the market on average. In the first half, funds that closed spent an average of 19 months on the markets. Funds that closed in 2011 took an average of 17 months to close. In contrast, private equity funds that closed in 2007 spent an average of 8.8 months on the market.