PE Real Estate Fundraising Hits 5-Year Low

By Allen Kenney
Global private equity fundraising for real estate investment sunk to a five-year low in the second quarter of 2009, according to a new report from alternative asset research firm Preqin.
Private equity real estate firms managed to raise just $8.9 billion between the beginning of April and the end of June, Preqin said. That represented a $7 billion shortfall from the previous quarter and a decline of more than 75 percent from the third quarter of 2008, when fundraising hit its high for the five-year period. It also marked the first time private equity real estate fund inflows dipped below $10 billion since the third quarter of 2004, when funds brought in approximately $8 billion.
Preqin also pointed out that the aggregate target for private equity real estate funds' total value had dropped from $227 billion in March 2009 to $199 billion at the end of June. Preqin attributed the decline to diminished fundraising expectations on the part of fund managers, as well as funds being scrapped or temporarily suspended. Whereas a total of 25 funds were either put on hold or abandoned throughout all of 2008, 36 funds suffered the same fate in the first six months of 2009 alone.
Ignatius Fogarty, manager of real estate data for Preqin, speculated that substantial losses last year had left investors treading carefully when it comes to new investment in commercial real estate through private equity funds. "In addition, many that are keen to commit to new vehicles are unable to invest at the same levels as in previous years due to a fall in value for their overall investment portfolios," Fogarty said.
In terms of regional performance during the second quarter, Europe-focused funds saw the largest amount of new capital investment, $5.1 billion. U.S. funds garnered $3.2 billion, while funds focused on Asia and the rest of the world netted $400 million for the quarter.