Private Equity Real Estate Fundraising Continues at a Crawl

By Allen Kenney
Private equity real estate funds continue to struggle to raise investor capital, according to an analysis from alternative assets research firm Preqin.
Worldwide, private equity real estate funds garnered a 4 percent increase in new investment from the fourth quarter of 2009 to the first quarter of 2010, Preqin found. The $9.8 billion raised marked the third consecutive quarter in which fundraising failed to crack $10 billion. Preqin said the pace of fundraising was "far slower" than what has been witnessed in previous years.
Additionally, managers are requiring more time to reach their fundraising targets. The private equity real estate funds that closed in the first quarter of 2010 spent an average of 18.8 months raising money before meeting their goals. In 2006, funds needed an average of just less than 10 months to close.
Andrew Moylan, Preqin's manager of real estate data, noted that while investor confidence appears to be improving, fundraising probably will remain difficult in the near future.
"With investors receiving very few distributions from their existing fund commitments, it is not necessary for them to invest at the same pace as they did in previous years in order to maintain their real estate allocations," he said. "As a result, fundraising is set to remain challenging, and although some firms will successfully close funds in the coming months, investors will need to see more in the way of profitable exits and stabilization in property prices before conditions improve significantly."