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Small Gains in Private Real Estate Fundraising

10/04/2012 | By Carisa Chappell

Private real estate fundraising remains competitive but has witnessed small gains in the third quarter of 2012, according to data released Oct. 2 from alternative asset research firm Preqin.

The firm noted that 26 private real estate funds held final closes in the third quarter, raising an aggregate $9 billion. While it represents a slight increase on the $8.3 billion raised in the third quarter, it's lower than both the $11.9 billion raised in the first quarter and the $16.7 billion raised in the fourth quarter of 2011.

"For private real estate fund managers looking to raise capital, the fundraising market remains very challenging," said Andrew Moylan, Preqin's manager of real estate data, adding that the increase is still well below the $12.1 billion raised a year ago in the third quarter of 2011.

Moylan attribute the difficulty in private equity fundraising to the record number of funds in the market. Preqin's data revealed that there are currently 467 private real estate funds in the market targeting aggregate commitments of $168 billion.

"It is also increasingly difficult for managers to stand out from the crowd," he said, adding that the number of funds in the market has been increasing each quarter throughout 2012 so far. There were 453 funds on the market in the second quarter.

Moylan explained that evidence suggests that fundraising will remain challenging in the fourth quarter of 2012 and into 2013.

"Preqin's latest conversations with institutional investors have found that just 42 percent of investors in private real funds are planning to make new commitment s in the next 12 months," he said.

Funds with a primary focus on North American raised the most capital in the third quarter of 2012. Twelve funds received aggregate commitments of $4.2 billion, while six Asia-focused funds raised $2.5 billion. Five Europe-focused funds raised $2.0 billion.

Additionally, the funds that closed in 2012 so far have spent more time on the market on average so far. It's taken about 18.2 months to close funds, compared to the average time frame of 17.2 months it took funds to close in 2011.

Moylan said the longer time frame that funds are spending on the market signifies the difficulty managers are having raising capital for private equity.

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