Investment managers seeking to raise over US $1.0 billion in equity capital for 'large-cap' opportunistic real estate fund strategies virtually disappeared off the map in the first half of 2010.
According to the latest research from Clerestory Capital, only one large-cap fund was represented among the 31 new non-listed funds aiming to attract US $12.6 billion in this period.
Joanne Douvas, Co-Founder and Managing Principal at Clerestory said: "The research confirms the strong trend identified at the start of the year that opportunistic real estate funds are scaling down in size. There also appears to be significant churn in managers that come to the market but are not successful. However, managers with proven track records and the ability to execute are raising capital, as evidenced by the funds that have reached a final close during the first half of 2010."
Overall, the total volume of capital raising targeted in opportunistic strategies has declined sharply this year from the second-half of 2009. Previously, there were a total of 91 funds seeking to raise US $72 billion of equity versus 80 funds seeking to raise US $44 billion of equity today. This decline was primarily due to a decrease in capital being sought by large-cap funds and a number of funds that were pulled from the market.
Clerestory defines SC-Opportunistic funds as those raising less than US $1.0 billion of equity and LC-Opportunistic funds as those raising more than US $1.0 billion of equity commitments. Of the 30 new SC-Opportunistic funds seeking US $11.3 billion, and the single new LC-Opportunistic fund seeking US $1.5 billion, over half (18 funds) are in the Americas. These funds are trying to raise US $7.6 billion in equity.
Tommy Brown, Co-Founder and Managing Principal at Clerestory said: "We continue to characterize the US and European real estate investment markets as either 'slow' or 'stuck.' For the foreseeable future, they appear to be locked into the 'Great Muddle' until equity and debt holders are willing to recognize their losses from the slump in values during the financial crisis, these markets will continue to muddle along."
Brown added that institutional investors in real estate seem to be focused on rebalancing their portfolios towards 'core' properties. This, along with the relative attractiveness of core property yields versus other investment asset classes, has resulted in strong demand against a dearth of available core product. Brown concluded that investors are lining up for core assets at a time when the key objective should be applying fresh equity to broken capital structures in order to get the real estate investment markets moving again.
Source: Bellier Financial