Investors close the door on real estate

Private equity real estate funds are feeling the pinch of the economic downturn with research showing 22 funds raised US$13bn globally in the first quarter of the year, the lowest amount since Q4 2004, when 45 funds raised US$10bn.

The latest report from data providers Preqin show the tally for Q1 2009 was down marginally from the US$18bn raised in Q4 2008 – from 48 funds – and down significantly from the same period last year when 43 raised US$32bn.

However, the number of funds in fund raising mode has increased although there has been a dip in the average target size– in January, 381 funds were looking for US$228bn; in March, 390 vehicles were chasing US$227bn.

These statistics mean it will become increasingly harder for private equity real estate funds to raise their targeted amount as closings are harder to come by and the amount of funds hunting for investment increases.

Already this year 14 fund raisings have been scrapped – there were 17 for the whole of 2008.

In response to the economic downturn, there has been a marked increase in the money being directed at debt and distressed real estate – of the US$13bn raised, up US$7.6bn has been earmarked for these kinds of assets.

Preqin spokesman Ignatius Fogarty said: “As new valuations come in, investors that have been out of the market will return and fundraising levels will begin to increase. There are a growing number of opportunities in the debt and distressed market and institutions will be keen to take advantage of these. Fundraising conditions however will be tougher and more fund managers will be forced to abandon their fundraising efforts as institutions will have significantly less capital available for new investment.”