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Private Real Estate Fundraising Declines to 10-Year Low in First Quarter

04/26/2013 | By Carisa Chappell

Fundraising for private real estate investment reached its lowest level in 10 years in the first quarter of 2013, according to the latest data released by alternative assets research firm Preqin. 

The firm noted that the $5.2 billion raised by private equity funds that closed in the first quarter is the lowest quarterly total since the third quarter of 2003 Twenty-two closed-end private real estate funds held final closes in the first three months of 2013.

In the fourth quarter of 2012, private equity real estate fundraising reached its highest quarterly point in four years when funds raised $22.6 billion.

Investors’ appetite for private real estate appears to be high, as the Preqin report noted that 53 percent of private real estate investors plan to make a commitment to the private equity real estate  in 2013, a jump from the 36 percent who planned to commit in 2012. However, Andrew Moylan, head of real assets products for Preqin, attributed the fundraising decline to strong competition in the marketplace.

“The first quarter of 2013 was a slow period for private equity real estate fundraising. Competition for limited partner commitments remains intense, and fundraising for most managers is a long, difficult process,” he said. “While there is a degree of momentum in the fundraising market, with 44 funds holding interim closes in the quarter, it remains very hard for managers to hold final closes for their funds.”

There are currently 436 private real estate funds in the market, targeting aggregate commitments of $157 billion.

The 20 firms that closed in the first quarter spent an average of more than 18.7 months marketing their funds, according to Moylan. That represents a small increase from the average 18.3 months taken to raise capital for funds that closed in 2012. He pointed out that funds took an average of 9.2 months to close in 2007.

Funds with a primary focus on North America raised the most capital in the first quarter of 2013. Twelve funds dedicated to North America received aggregate commitments of $3.7 billion, while three Europe-focused funds and five Asia-focused funds raised totals of $756 million and $776 million, respectively.